VAT on independent school fees: FAQs

How do we register for VAT?

Registration is done online at the HMRC website. If you already have a government gateway account, you will use the same account, alternatively you can ask your advisers to prepare and submit the application for you.

Things to watch out for are, the date you register with effect from. Fees will not become taxable until after the law changes, currently 1 January, but you can register with immediate effect, to start claiming VAT on costs you will use after that date. However if any of your income is already standard rated for VAT, but below the registration threshold, then you have to start charging VAT on that from your effective registration date.

Will everything we do now be subject to VAT?

The new rules say that education and board and lodging supplied by a private school will no longer be exempt from VAT, but other supplies of goods or services ‘closely linked to supplies of education’ will stay as exempt from VAT. If there is a single fee, then the predominant supply would be the taxable education, but if fees are separate, and pupils/parents can opt in and out of elements, then each element takes on its own liability.

Budget guidance indicates that school meals will fall within ‘services closely linked to a supply of education’ and therefore they believe they should be exempt from VAT. That being the case, the VAT on costs would not be recoverable. However if school meals are provided as an overall supply of education, they will take on the VAT liability of that education. Whilst VAT will have to be charged on the fees, the school will be able to recover the VAT incurred on catering.

Can we claim back VAT on all our costs going forward?

If all of your income going forward is subject to VAT, even if some of it is at zero rate (possibly book sales) then you can claim back all of the VAT on costs. There are some overarching rules relating to evidence and disallowable expenses which apply to all businesses which are set out below. If you have a mixture of taxable (for VAT purposes) and exempt income, then you can only claim the VAT which relates to taxable activity and will need to undertake partial exemption calculations to work out how much you can claim.

Nursery classes, are they taxable or exempt?

Although the draft legislation clearly states that nursery education remains exempt, the guidance issued by HMRC says that nursery classes are only exempt if they do not have any children in them above school age. This initial guidance implied that if there are any children expected to reach school age whilst in the class, then the whole class is subject to VAT. This has now been updated to say that if the class consists wholly or almost wholly of children expected to remain under compulsory school age, this will be exempt. It remains to be seen how we quantify what is meant by ‘almost wholly’. The imposition of VAT in this way will impact classes catering for children with special educational needs who may remain in nursery school until ready to move classes.

Is there an HMRC helpline for schools?

Schools, their representative bodies and tax advisors are invited to contact HRMC by email at vatonprivateschoolfees@hmrc.gov.uk

School trips – what is TOMS?

HMRC’s guidance mentions that school trips will be subject to the Tour Operators Margin Scheme. That would be the case if the school bought in and sold on travel services to pupils. If trips are booked directly with a travel company, with the school merely acting as intermediary, then it will not be necessary to undertake TOMS calculations. It seems likely that overseas trips, often booked and arranged by a travel company would not be caught, but day trips with the school buying in travel services and paying admission fees could fall under the TOMS rules.

We built a gym three years ago, can we claim anything?

You can claim back VAT incurred before registration in three specific circumstances. In each of these cases, you will need to have proper VAT invoices to support a claim for input VAT. The first case is if you have bought goods in the last four years which are still in use for purposes which will become VATable, classroom furniture for example. Secondly you can claim back VAT on services purchased in the six months before you register for VAT but which will be used after your income becomes VATable. If you have a classroom redecorated in the Christmas holiday, you can claim back the VAT. Input VAT on services which have already been used up, such as the phone bill, can’t be claimed. If the implementation were to be delayed, though, some such services could fall out of time to claim. For larger expenditure, such as a building project, there is a ten year adjustment period if the use changes from exempt to taxable, this is called the Capital Goods Scheme and applies to building work costing more than £250,000 of VAT bearing costs. So, if you paid £300,000, including VAT, for a new gym 3 years ago you can claim back one tenth of the VAT on that each year for the next seven years. Subject to the specific timing rules, you could get back £35,000 of the VAT paid.

Will grants cover VAT?

If grant funding is in place to cover fees, the terms of the funding agreement will need to be checked to confirm whether it will cover the addition of VAT to fees.

What is a Partial Exemption Special Method?

As above, you can claim back VAT used for taxable purposes, but not VAT used for exempt purposes. If you have a mixture of taxable and exempt activity, you need to apportion costs to their ultimate use. The standard method for apportioning indirect costs is based on the relative levels of income, but this does not always result in a fair apportionment and a special method can be used. Before you can use a partial exemption special method, you have to set out the proposed method in detail to HMRC and get their agreement for its use.

What records do we need to keep?

To be able to claim back VAT, you will need VAT invoices properly addressed to the school. If you operate more than one entity, you will need to ensure invoices are addressed to the VAT registered entity to ensure you are entitled to claim VAT back.  VAT returns have to be submitted by way of Making Tax Digital compliant software. The invoices you raise for fees will need to show details of your VAT registration, the type of supply being made and the applicable VAT rate. Other details required are set out in section 16 of the VAT guide. That guide is a useful start point for anyone needing to account for VAT for the first time.