Independent schools and VAT
Considerations over the summer break
Independent schools are becoming more familiar with the 2025 change in VAT rules.
This year, we have seen many complete the first substantial Capital Goods Scheme claim, and many have been checked and paid by HMRC. Aside from HMRC’s policy on exemption applying to fees in advance pre-29 July 2025, there is some more clarity, and many schools have successfully adapted systems and pricing to accommodate the new rules.
However, with the summer term now fast approaching, we have identified several areas for independent schools to focus on over the next few months.
Autumn term invoicing
As independent schools prepare for the Autumn 2026 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 2026 but dating it 1 September 2026 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.
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.
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
HMRC’s written guidance remains unclear on the subject. However, our understanding, following calls with HMRC, is 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. This position has been confirmed in a number of VAT inspections.
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