Back to School – But Not As We Know It Natalie Braier – Tax Manager, PFK Littlejohn

Little did I envisage back in 1979 that my enthusiastic chant of Pink Floyd’s “we don’t need no education” could spiral into the extinction of my local faith school almost five decades later.

Unsurprisingly, the imposition of VAT is a highly-emotive issue for many parents who have felt that they have had no choice but to send their children to a private fee-paying school due to religious reasons, special educational needs (SEN) as well as other reported and uncontested issues relating to the safety and wellbeing of their children, eg bullying at the local state school.

However, trying to retain the current VAT-exemption in the above circumstances would likely be unworkable in practice because the related VAT law / HMRC guidance would be complex and it might lead to inadvertent non-compliance by schools when calculating the VAT that they need to pay to HMRC.

Instead, the Government could potentially consider introducing a grant scheme available for parents in respect of children educated at private fee-paying schools as described above. Such a scheme would provide grants to cover part / all of the VAT payable by the schools to HMRC in future in respect of their education of those particular categories of children.

There is already a similar scheme in place, The Listed Places of Worship Grant Scheme, which gives grants that cover the VAT incurred in making repairs to listed buildings in use as places of worship. Following the announcement that the zero rate of VAT for approved alterations to listed buildings would be withdrawn from 1 October 2012, the Government extended the Listed Places of Worship Grant Scheme to also cover repairs, maintenance and approved alterations to listed places of worship. The impact of the removal of the zero rate of VAT affecting churches etc was a highly-emotive issue at the time, similar to the imposition of VAT on school fees now.

A similar ‘VAT costs’ grant scheme could perhaps be implemented by the DfE to give grants to parents of certain children to cover some / all of the VAT that will be payable come January 1, 2025.

VAT – THE FIRST 100 DAYS

As sure as day follows night, it appears that VAT will be applied on private school tuition from new year, 2025. Goodbye bursar, hello CFO of a highly complex business. Here are our top tips for getting ready:

• If not registered for VAT already, submit your online VAT registration now. VAT incurred in the six months prior to VAT registration may be recoverable so let’s get those VAT registration applications rolling. We are working with one school that could have registered for VAT 25 years ago; we are assembling a VAT refund claim in the hundreds of thousands.
• If VAT registered already, now is a good time to review whether any VAT has historically been left behind.
• From 1 January 2025, a private school will likely be making a mixture of exempt and taxable supplies and therefore it is imperative that a financial platform is implemented now to cope with all the different VAT treatments of income / expenditure.
• Consider hiring finance staff who have worked at a VAT-registered business before and who have prepared and filed VAT returns in previous roles.
• Although a private school isn’t legally required to issue VAT invoices (because their supplies are to private individuals), we recommend that invoices showing VAT amounts charged on different income streams are issued in the interests of transparency and accountability.
• All future capital investment, as well as that made during the past 10 years, should be reviewed by a competent VAT advisor to assess potential VAT recovery opportunities.
• The school’s website should include a section on VAT that is signed off by a specialist VAT advisor.

VAT should be approached in a proactive manner. Collaborative and open communication with parents should help to avoid potentially combative clashes as the clock ticks down to V Day.