- School will have to use notoriously complex system for VAT on school trips
- Schools risk being required to charge VAT on goods and services that should be exempt
With private school fees subject to VAT from January 1 2025, HMRC recently issued guidance for private schools on how it must be charged.
Jas Dhillon, Partner at chartered accountants and business advisors Lubbock Fine, says this new guidance introduces a number of complexities:
“The new guidance for VAT on school fees is very complex. The Government has taken a route that will add a lot of red tape for private schools.”
“Schools will need to pin point and work out when to register and account for VAT on school trips via the ‘Tour Operators Margin Scheme’. The latter alone is a compulsory and complex VAT accounting method.
“The guidance also suggests that schools will need to itemise everything that they provide and take separate payments for VAT and VAT-exempt services. If this isn’t done correctly, they may end up having to pay VAT on the entire amount received.”
“It is also likely that a nursery class – which should still be VAT-exempt – may now have to charge VAT if they have even just one student that is of compulsory school age. It certainly isn’t HMRC’s intention to apply VAT on nursery classes wholesale, but this new complexity could make that a reality.”
“The main supply of education is subject to VAT, but ‘closely related’ goods and services like stationery and meals are not. However, the term ‘closely related’ doesn’t take into account single/multiple supplies where a service, if broken down into its various elements, would have differing VAT liabilities.
“This represents a significant grey area that schools and HMRC are likely to clash on. It seems it will be very easy for schools to make VAT accounting and invoicing errors that fall foul of HMRC’s new guidance – which could result in penalties from HMRC.”
