The Government has released further detail on its plans to eliminate tax breaks for private schools. Several pressing questions regarding the new Government’s flagship policy on private school fees have now been clarified including, pre-payments, the VAT treatment of various services, and provisions for special education needs.
Starting January 1st, VAT will be applied at a rate of 20% to private school fees and boarding costs. This tax will also include any pre-paid fees. To prevent schools from avoiding this new rule by collecting fees early, an anti-forestalling measure has also been implemented. This measure states that any fees for terms beginning on or after 1st January 2025, will be subject to VAT as of 29th July 2024.
If a private school has received payment upfront for school fees for one or two years in advance prior to 29th June 2024 then they will not be caught up in the changes to VAT. As it’s unlikely that many schools have taken the risk to implement these upfront payments the majority of parents and schools will be facing an additional 20% on their private school costs for terms starting 1st January 2025 onwards. As VAT will also apply to pre-payment of fees this will not be an option as a route to circumvent the tax rise.
In order to protect vulnerable students the Government has confirmed that the VAT measure will not apply to children with special educational needs where those needs can only be met in a private school setting.
The end of tax breaks for private schools marks a significant shift in Government policy. The clarification of the scope and limitations of the new VAT on school fees introduces new challenges for private schools and parents as they work through these significant changes.
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