Charging and reclaiming VAT on goods and services related to private school fees

Overview

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This guidance explains how some payments and situations relating to education will be treated for VAT.

VAT will be due on the total of everything that is received in return for providing education to the student. For example, this may include the amount paid by the parent, as well as any external bursary that may be paid for the education of that student.

You can find out general information about:

• how VAT works
• how to charge, reclaim and record VAT

VAT on goods, services and payments

Supplying education services that include other elements (such as school meals and transport)

If you supply a number of goods and services together, it is important to know where VAT applies to either:

• the whole transaction
• each part of the supply individually

When you supply more than one good or service together as a package, this will be normally seen as a single supply. In the same way, where a service is provided along with goods or services that are ancillary to (that is, in addition to) the main service, this will normally be seen as a single supply.

You should not artificially split the package to create separate supplies with different VAT liabilities. The single package will have a single VAT treatment.

Where a number of separate goods or services are supplied together, and where each represents a separate aim to the customer, these will be seen as separate supplies. Each supply will have its own identity and may be subject to a different rate of VAT.

When you supply a package of education for a single fee this will normally be a single supply for VAT. This package could include a number of elements (such as transport or meals) alongside the main element of education. As a single supply, this will have a single VAT liability.

Where a school supplies education and also supplies other elements for a separate fee, these will normally be separate supplies. For example, if a school offers school meals alongside the education for a separate charge, these will normally be 2 different supplies. These may have different VAT liabilities. Although the education will be subject to the standard rate of VAT, the school meals may be exempt if they meet the conditions for being closely related services.

Find out more in VATSC11113 of the HMRC VAT Supply and Consideration internal manual.

Supplying special educational needs and disabilities (SEND) therapies and education

In certain settings, pupils may receive both education and therapy services while at school. Services supplied by registered healthcare professionals, such as speech and language therapists or educational psychologists, would usually qualify as healthcare, rather than education for VAT purposes. Qualifying supplies of healthcare are exempt from VAT as long as the primary purpose of these services is the protection, maintenance, or restoration of the health of a person.

If these services are supplied through your school, you must determine:

• who is making the supply
• whether these services form part of a single supply of education or are a separate supply of healthcare

You should also read the ‘Supplying education and welfare services together’ section in this guidance.

The following examples show how differences in the way these services are delivered may lead to different VAT outcomes.

These examples are illustrative only and you will need to consider your school’s individual circumstances.

You can find more information on:

• VAT Supply and Consideration
• accounting for VAT on goods or services for health professionals and pharmaceutical products

Example 1

Example 2

Example 3

Supplying education and welfare services together

If you supply education together with welfare services it is important to determine if the supply is a supply of welfare or education.

Some services being supplied may fall into the welfare exemption as a supply of welfare rather than a supply of education.

The main (larger) element of the supply must be welfare.

An example of a supply of welfare is supervision and guidance provided to a vulnerable person to develop a capacity to live independently and complete everyday tasks. This may be listed in an education, health and care (EHC) plan.

If a school is providing education to a pupil — and the parent considers that is what they are buying — any welfare that is provided to the pupil during the school day will be secondary to the education. This will be seen as a single supply of education for VAT purposes.

An example of an exempt welfare service is day care services — such as those provided by a playgroup or after school club (but not activity-based clubs, such as dance classes). These services are related to the care and protection of children.

Find out more about VAT on supplies of welfare and the conditions of welfare supplies in Welfare services and goods (VAT Notice 701/2).

Some specialist special educational needs and disabilities (SEND) schools may provide provisions of care and education. Whether a supply is one of care or education will be determined by the predominant element of the supply. Where a SEND school is providing education for a fee this will be subject to VAT.

You can find out more about how local authorities can recover VAT in the ‘Local authority placements in private schools’ section of this guide.

Receiving grant payments for education services

Whether VAT applies to a grant payment will depend on the exact nature of the grant arrangements.

Block grant funding that does not relate to individual pupils (for example, block grants from the Education and Skills Funding Agency) will usually be outside the scope of VAT.

However, if you receive a grant to cover a specific pupil’s fees the whole fee will be subject to VAT, because there is a direct link between the service you are supplying and the payment you have received.

For each payment you receive you’ll need to decide if there is a ‘consideration for a supply’ and if it is liable to VAT.

Find out more about supply and consideration and grants in VATSC06310 of the VAT Supply and Consideration HMRC internal manual.

VAT treatment of bursary payments for school fees

VAT will apply to the total value that is received in return for the education the school provides to the student. The school will account for VAT on the total amount of the fee charged for the education, even if this is made up by both the parent’s payment and a separate bursary paid for that child.

For example, VAT will be chargeable on 100% of a fee if:

• a school receives a bursary payment for a specific child that accounts for 30% of the total chargeable fee
• the parent of the child pays the remaining 70% of the fee

When a school provides a bursary payment to itself, the payment will be outside the scope of VAT.

Local authority placements in private schools

When a private school is named in the EHC plan of a student and the local authority funds the place of the student, VAT will be due on the fees.

This means that local authorities will pay VAT on the supply of education to the student.

Local authorities can reclaim VAT incurred using the existing ‘section 33’ processes.

Find out more information about section 33 in Local authorities and similar bodies (VAT Notice 749).

VAT invoices

If you invoice for goods and services that are subject to different rates of VAT, you can include them on the same invoice.

The invoice should show the rate of VAT that has been applied to each supply. 

Find out more in section 4 of Record keeping (VAT Notice 700/21).

Application and registration fees paid during the application process

If you charge an application registration fee that must be paid for a student to attend your school it will be subject to VAT, the same as normal school fees.

Other forms of payment

Consideration is a payment in return for the supply of a good or service — for example you paid a cash payment in return for a textbook. The consideration is the cash payment and the good is the book.

A payment will usually be made in money but does not have to be. Consideration can be paid in goods or services supplied in return (for example, a barter agreement), or a combination of both.

Find out more about VAT considerations in VATSC05000 of the VAT Supply and Consideration HMRC internal manual.

Activities of charities that run private schools

If a charity carries out a number of activities — including running a school — each activity must be considered separately to decide if it is a business activity and subject to VAT.

An activity is a business activity if it involves making supplies for a consideration with a view to generating income and will be chargeable to VAT. It is not necessary for the activity to make a profit.

Supplies provided for the classroom

Goods or services supplied for the direct use of the pupil, student or trainee that are necessary for the delivery of the education you provide are classed as closely related to the supply of education and will remain exempt from VAT.

To benefit from the exemption, the goods or services must be supplied separately from the main education. See the ‘Supplying education services that include other elements (such as school meals and transport)’ section of this guidance for more information.

For example, if you sell stationery to a pupil to use in class, this is closely related to the supply of education and will continue to be exempt from VAT.

All other goods and services that are not closely related to the supply of the education will be subject to VAT.

Nursery classes provided by private schools

Nursery classes that are wholly, or almost wholly, made up of children below compulsory school age remain exempt from VAT. For example, where 90% of the children in the class are below compulsory school age the class will be exempt from VAT.

Extra-curricular and before and after school clubs

Extra-curricular activities which are educational in nature will be subject to VAT when provided by a private school.

However, any before or after school childcare, or childcare-based holiday clubs, provided by a private school that consist of care will continue to be exempt from VAT.

VAT implications for fee-paying sixth forms and further education providers

If your main purpose is to provide education that is wholly or mainly suitable for 16 to 19 year olds and you receive a fee for full time education provided to 16 to 19 year olds, then you will be affected by the changes to VAT.

For further education providers, wholly or mainly means that at least 51% of the class must be made up of pupils aged 16 to 19 to whom education is provided to for a fee.

How you will be affected will depend on the nature of the education you provide and your typical target audience.

For example, a sixth form college that mainly provides ‘A’ level tuition will be regarded as providing education suitable for 16 to 19 year olds. The college will be subject to VAT if it is providing full time education to 16 to 19 year olds for a fee.

Education that is normally targeted at students over 19 years old (for example, undergraduate and postgraduate education) will not be affected by these changes.

Independent training providers

Independent training providers providing education to 16 to 19 year olds for a fee will not be subject to VAT if the funding is provided under a contract with a relevant contracting authority.

Relevant contracting authorities are:

• The Secretary of State
• Medr (Commission for Tertiary Education and Research)
• The Department for the Economy in Northern Ireland
• Skills Development Scotland

Non-maintained special schools

Block grant funding provided to non-maintained special schools will usually be outside the scope of VAT. Find out more in the ‘Receiving grant payments for education services’ section of this guide.

A non-maintained special school will be required to charge VAT if it receives funding on a per-pupil basis from a local authority when they are named in the EHC plan for the pupil. The local authority will be able to reclaim this VAT.

Non-maintained schools charging fees to pupils for education that do not receive block grant funding will be subject to VAT.

Teaching English as a foreign language

Courses provided by private schools that teach English as a foreign language will continue to be exempt from VAT.

Higher education courses 

Higher education courses provided by private schools will continue to be exempt from VAT. Higher education courses are defined:

• as higher education courses in England and Wales specified in section 83(1) of the Higher Education and Research Act 2017
• as courses in Scotland specified in section 5(3) of the Further and Higher Education (Scotland) Act 2005
• in Northern Ireland as courses of any description mentioned in paragraph 1 of Schedule 1 to The Further Education (Northern Ireland) Order 1997

How to define board and lodging fees

The term ‘board and lodging’ is not defined in legislation.

Board and lodging relates to the arrangement where a pupil lives in school accommodation during term time.

Any board or lodging fees that are closely related to education or vocational training will be subject to VAT.

Donations and voluntary contributions to private schools

A donation of money or a voluntary contribution will not be chargeable to VAT if:

• the donor gives it of their own free will
• the donor or their beneficiary does not receive anything in return
• the donation is not subject to any terms or conditions

Find out more about VAT and donations in VATSCO6110 of the VAT Supply and Consideration HMRC internal manual.

Reclaiming VAT

Reclaiming VAT on supplies 

You can reclaim VAT incurred on the goods and services used to make taxable supplies such as education and boarding.

VAT you incur on purchases that are used exclusively for non-business purposes cannot be reclaimed.

You cannot normally reclaim VAT on exempt supplies such as closely related goods and services supplied with education. 

Private schools will likely be providing taxable and exempt supplies.

This makes them partially exempt businesses incurring VAT on taxable and exempt supplies.

To work out how much VAT you can reclaim, you will need to perform an apportionment. This is known as a partial exemption calculation. 

There are 2 ways for calculating and apportioning:

• the standard method
• a bespoke method (known as Partial Exemption Special method)

Find out more in Partial exemption (VAT Notice 706). 

Incurring VAT on supplies before registering for VAT 

In certain circumstances, VAT incurred in relation to taxable supplies before a business registers for VAT can be reclaimed. 

VAT can be reclaimed for:

• goods received not more than 4 years before registration that are still on hand at registration
• services received not more than 6 months before registration, that relate to business activities carried out after registration

The incurred VAT may need to be apportioned over the economic life of the goods (normally 5 years), and be based on the:

• taxable period of use
• exempt period of use

Large capital items and reclaiming VAT 

VAT incurred on large capital items is recovered differently to everyday expenditure.

To reflect the fact that the use of these assets can change over time, the Capital Goods Scheme allows for the VAT recovered to reflect this changing use.

For example, this could apply where capital assets have been acquired in recent years (when it could not be recovered when used for exempt education) and will now be used for taxable education. 

This scheme applies to: 

• land, building and civil engineering works of a value of £250,000 or more
• items of computer equipment of a value of £50,000 or more
• aircraft, ships, boats or other vessels of a value of £50,000 or more

You may be entitled to reclaim VAT you have incurred on capital items that are less than 10 years old. Find out more in Capital Goods Scheme (VAT Notice 706/2).

Hiring or letting out facilities

The VAT treatment of the hiring or letting out of facilities will not change.

Find out more about when and how to charge VAT when hiring or letting out facilities in section 3.4 and section 5 of Land and property (VAT Notice 742).

Buying travel and accommodation for resale to pupils

If a school ‘buys in’ travel services related to a school trip (for example, transport or accommodation) that are then resold to pupils they may be treated as a tour operator for VAT purposes.

In these cases, the school must use the Tour Operators Margin Scheme to account for VAT on the trips. Find out more about tour operators and the Tour Operators Margin Scheme in:

• Tour Operators’ Margin Scheme (VAT Notice 709/5)
• Travel agents (VAT Notice 709/6)

Get more information

HMRC is hosting live webinars about VAT on private school fees, where you can learn about:

• checking if and when you need to register for VAT as an education provider
• recognising the goods and services you need to charge VAT on and reclaim VAT for

Find out how to register for a webinar in the HMRC email updates, videos and webinars for VAT guide.

You can also find out more about:

• sending a VAT Return
• how to pay your VAT bill
• VAT repayments
• HMRC email updates, videos and webinars for VAT