Autumn Budget 2024: VAT Customs Duty

Following a period of uncertainty for the independent school sector, HMRC appear to have taken on board some of the feedback received from schools and other sector representatives over recent months. We are particularly pleased to see two of our main hopes for the Budget addressed.

1. The updated legislation released today has amended the wording that would mean one compulsory school aged child in a nursery class, results in the whole classes’ fees becoming subject to VAT. Where the nursery class is made up of children 'almost wholly' under compulsory school age, (which HMRC’s published guidance has interpreted as 90%), the whole class can be treated as exempt from VAT.
2. A further update to draft legislation has addressed the inequity in the VAT treatment of English as a Foreign Language (EFL). Both schools and other EFL providers will continue to treat EFL supplies as exempt from VAT.

These changes are the result of the efforts from the Independent Schools’ Bursars Association (ISBA), the Independent Schools Council (ISC), and The Heads’ Conference (HMC) following their numerous meetings with HMRC, plus schools’ individual responses during the consultation. Despite efforts to delay implementation not being addressed, it is positive to see that some of this feedback has been taken into consideration.

We anticipate further changes to the current HMRC guidance including points covered below.

• The policy regarding schools who offer free places will state that a restriction of VAT on costs in relation to this free supply of education, will not be required. However, for prudence, schools should continue to model on the basis that a restriction is required until this is confirmed.
• HMRC has confirmed that its intention is to exercise discretion in allowing newly registered schools to recover a percentage of the VAT incurred on goods, during a five-year period prior to registration. This only applies to goods and to schools that are not already registered for VAT and has created a disparity between registered and non-VAT registered schools.

What next?

As with any new legislation, there will be a period of settling in and we can expect further updates to guidance over the next year or two. We will continue to provide updates and we are running a free webinar for schools to attend, you can register here.