VAT and school holiday clubs

Esther Lau, Senior Manager, Corporate Tax

As we approach the school summer holidays, this article serves as a reminder of the VAT and corporate tax considerations for independent schools regarding holiday camps.

When providing a club, the key consideration for schools is whether tuition/coaching is involved, or whether it is only a supply of supervision, meaning the childcare exemption can apply.

There is existing guidance from HMRC in Revenue and Customs Brief 18 (2020) that remains applicable. This guidance follows the decision of the VAT Tribunal in RSR Sports Ltd, with HMRC confirming that it will consider the predominant nature of the holiday club when determining the correct VAT treatment. Accordingly, the club's main purpose needs to be carefully assessed when determining VAT liability.

Who does this affect?

The VAT treatment for holiday clubs is a consideration for both schools and their trading subsidiaries who supply holiday clubs.

Note that this does not affect clubs which are provided under a partnership arrangement. Where partnership arrangements are in place, contracts will be key to determining who is the principal in the provision of the club. Further, this article does not affect the VAT treatment of letting school grounds or buildings to operators of school holiday clubs.

What is the issue?

From 1 January 2025, supplies of education made by independent schools and connected entities (wholly owned trading subsidiaries) are subject to VAT. Therefore, where the club includes tuition/coaching, the supply is VAT-able whether supplied by the school or its subsidiary.

VAT exemption applies to supplies of childcare made by charities and/or state-regulated bodies, for instance, those that are Care Quality Commission (CQC) registered or OFSTED registered.

HMRC’s VAT notice 701/2 explains that this exemption can apply to day care services but not activity-based clubs, giving the example of dance classes.

When determining whether the exemption applies, HMRC will consider:

Whether the provider is state-regulated
Whether the activities offered are ancillary (i.e. an ‘adjunct’ to the childcare service); and
The nature of staff qualifications (e.g. carers vs coaches/teachers).

In some cases, particularly clubs that offer a wide range of sporting and non-sporting activities, it will be less clear-cut, and rulings may be required to obtain certainty from HMRC.

As schools are OFSTED-regulated, school-provided childcare supplies will be exempt from VAT. For supplies of childcare by trading subsidiaries, consideration should be given as to whether the subsidiary is regulated before applying the exemption.

Corporation tax considerations

From a corporation tax perspective, the treatment of holiday clubs will depend on how the activity is structured and the nature of the provision.

Where the provision of holiday clubs constitutes a primary purpose activity (for example, where the activity is sufficiently linked to the school’s charitable educational objectives), any resulting profits will generally be exempt from corporation tax. However, where the activity is limited to supervision or childcare, with no clear educational objective, it is likely to be regarded as non-primary purpose trading, falling outside the school’s charitable objectives. In these cases, the profits will be subject to corporation tax unless they fall within the small-scale trading exemption limit, currently £80,000. However, some schools’ governing documents may include broader objects (such as the provision of recreational facilities in the interests of social welfare).

Where activities fall outside the scope of exemption, schools may consider operating holiday clubs through a wholly owned trading subsidiary. In such cases, profits arising in the subsidiary would be subject to corporation tax but can typically be reduced or eliminated through a Gift Aid payment to the parent charity. In practice, after allocating overheads and other direct costs, profits from holiday clubs may be minimal or nil, thereby reducing the overall tax exposure, where the primary purpose is not clear.

Careful consideration should therefore be given to the structure under which holiday clubs are operated, particularly where there is a mix of educational and recreational activities.

Teaching English as a Foreign Language (TEFL)

Although most education supplies provided by independent schools became taxable from 1 January 2025, TEFL is specifically excluded from this change.

Therefore, where independent schools provide TEFL to pupils, this will remain exempt from VAT.

However, care should be taken when determining the VAT treatment of a TEFL supply, as where the predominant element of the supply is sports/activity-based, with only a small element of TEFL, the supply is unlikely to fall within this exemption.

Note that where a school lets out its facilities to a TEFL provider, this will also be exempt from VAT. Schools should seek warranties from the TEFL hirer to ensure that VAT will be covered by the hirer in the event that HMRC deem the supply not to be TEFL.

Want to discuss this further?

We would be happy to lead a virtual meeting to discuss the implications of this brief, if there is sufficient interest. Please get in touch with our VAT team to register your interest in attending such a meeting or for further details on any of the above.