exam room

VAT on school fees 

How to mitigate the financial impact

Robert Warne, Partner, Head of VAT
exam room
The possible introduction of VAT on school fees has recently become a press-worthy subject due to the current political uncertainty. Imposing the current standard rate of VAT on independent schools will of course put financial stress on to the sector since in most, if not all instances, the market will not be able to absorb a 20% uplift in the price of education.
Is there anything that can be done to protect your school and mitigate the VAT cost if a future government seeks to apply VAT to fees?    

The answer is 'YES'
the reasons are outlined below.

When does VAT fall due on a transaction?

For a supply of education, the point at which VAT falls due will usually be the date that the school fees are paid. This is because the supplies are continuous in nature throughout the period of schooling and as the supply is currently VAT exempt - no ‘VAT invoice’ is raised.

How can this rule assist independent schools?

As a result of the above, the rate of VAT applicable is the rate in place at the time that the payment has been made. So, if a parent was to pay £100,000 today for five years’ school fees (or before any formal announcement that VAT is being applied to school fees), that £100,000 would be treated as VAT exempt.

If the government changed the VAT liability applicable to school fees it could only do so from a future date and, the £100,000 would therefore be protected from any VAT charge.  However, any payments made after the announcement could be subject to VAT, as HMRC would usually introduce ‘anti-forestalling’ legislation to prevent pre-payment VAT planning.

Fee in Advance Schemes - VAT

Many schools already operate fees in advance schemes whereby parents can effectively pre-pay for education. These schemes have the additional benefit of crystallising the point at which VAT would be applied, providing the school has unfettered use of the funds received. Therefore, schools should consider the possible VAT benefits of using fees in advance and ensure that the terms and conditions of the scheme give the best chance of achieving VAT exemption.

Should you wish to discuss this further, please contact Robert Warne or Kieran Smith


Contact us

Robert Warne
Rob Warne
Partner, Head of VAT and Customs Duty services