VAT on school fees

Written by Annie Lee on 8 May 2018

There has been much debate in recent years over VAT on school fees. Last year the Labour party planned to tax private school fees to pay for free school meals. The VAT position on education really depends on the political party decision. In reality the government can change the law and apply VAT to school fees.

Currently school fees are VAT exempt. There is no VAT charged on school fees and the schools can not reclaim the input VAT incurred on its purchases from HM Revenue and Customs.

If the VAT position changed, this would be a great concern for many independent schools and parents. Many schools would not be able to pass on all the VAT to the parents so the schools would need to absorb the cost and perhaps may be able to pass on some of the cost in terms of annual fee increases. Parents may no longer afford to pay the extra 20% in VAT on top of the ongoing fees. Even if the school is VAT registered the input VAT reclaimable from HM Revenue and Excise would still leave a shortfall in their finances.

The governors and trustees need to evaluate as part of their risk assessment the overall financial impact. They would need to consider whether the overall result would still leave the school as a viable going concern business.

Many schools have a capital expenditure plan to upkeep the school facilities. If the school is VAT registered, input VAT paid on capital works costing more than £250K under capital goods scheme can be reclaimed from HM Revenue and Customs. Schools may have built a sports hall, new classrooms, swimming pool or incurred school building refurbishment. Under the capital goods scheme the school may be able to claim back some or all of the input VAT paid in the last 10 years from the date of VAT registration.

If you wish to explore this further with our specialist team in charities and not for profit organisations, please feel free to contact us.

Annie Lee Profile
Annie Lee
Corporate Client Director