Independent schools and VAT

Considerations over the summer break

With the summer term now complete, we have identified several areas for independent schools to focus on over the next few months, along with some updates from our call with HMRC’s policy team at the end of July.

Autumn term invoicing

As independent schools prepare for the Autumn 2025 billing cycle, it’s essential to ensure VAT is accounted for correctly.

Under VAT rules, the tax point for a taxable supply is triggered by the earlier of the invoice date or the date payment is received.

A common mistake to avoid is forward-dating invoices, such as issuing an invoice to a parent in July 2025 but dating it 1 September 2025 to avoid paying the VAT in the August VAT return. HMRC expects VAT to be declared based on the actual date the invoice is issued, not based on a future-dated invoice.

To support cash flow, schools may consider issuing pro-forma invoices or payment requests during the summer. These documents do not create a tax point, meaning VAT is only due when payment is received or an invoice is issued.

Pre-registration input tax: services

HMRC’s June 2025 guidance update has provided welcome clarity for independent schools looking to recover VAT incurred on services pre-registration, as this widened the scope of recovery.

HMRC has confirmed that where services have a longer economic life, e.g., electrical rewiring, schools may apply a longer apportionment period (of more than 12 months), provided it reflects the duration of the benefit derived from the service.

HMRC has further reiterated that this recovery opportunity is only available to schools that registered for VAT as a direct result of the legislative change. Schools already registered for VAT are not eligible to reclaim VAT on pre-registration goods or services.

Annual adjustment

For those with a VAT year-end of 31 August, attention will turn to the annual VAT adjustment.

HMRC has confirmed that they would expect the SMO to be applied by all schools, and especially those in receipt of exempt fees in advance, as residual input tax is still ‘used‘ to provide an exempt supply of education.

Additionally, for schools that registered for VAT before 1 January 2025, the SMO calculation will need to include the portion of exempt education provided from the date of VAT registration. For example, a school registered on 1 December 2024 must include fees attributable to the period from 1 December to the end of that term.

For more information on the year-end calculation, please see our article on the standard method override, as well as our webinars on the year-end calculation.

Payments on account

The threshold for the payments on account scheme (POA) is £2.3 million over a 12-month period (i.e., the box five total from the last four VAT returns is greater than £2.3 million).

As a reminder, schools under the POA scheme are required to make monthly payments towards their VAT bill.

Schools that believe they have exceeded the £2.3 million threshold should check their VAT account to see when they are required to make the first POA. This will avoid schools missing payment deadlines, meaning interest could apply.

Business / non-business apportionment

There has been much speculation over whether schools are required to apply a business / non-business (BNB) apportionment to overhead VAT on account of freely given school places.

While HMRC guidance remains unclear, following our recent call with HMRC, it has become clear that where there is an economic reason for offering bursaries, e.g. increasing student diversity, raising the reputation of the school, advertising the facilities or what the school does for the local community etc., then HMRC would not expect a BNB apportionment to be applied.

For further guidance, please contact Kieran Smith, or your usual Crowe contact.