Private school VAT date confirmed in HMRC papers, increasing pressure on parents

Parents could face increasing pressure to meet private school fees deadlines as documents from HMRC reveal a new “urgent” payment date for Labour’s promised VAT policy.

HMRC documents have confirmed that 20 per cent VAT will be introduced on private school fees from January 1, 2025, despite warnings from the sector and unions that schools are not ready for it.

The government’s guidelines for private schools, released on Thursday, also confirm that the VAT changes will be introduced from the date of the budget, October 30..

This means that while VAT is only due on payments covering grade levels beginning after January 1, if a school receives payments for the spring semester from October 30 next year, the VAT is due on the date of payment and not at the time that the school year begins.

Experts say the change will put “greater pressure” on schools to ensure they comply with VAT rules, particularly in special schools which are less likely to have a well-funded finance department.

It could also make schools “less generous” to parents struggling with an increase in their fees due to the tax, who would normally be given leeway to make late payments, a private schools insider has warned.

Jonathan Main, tax adviser and partner at MHA consultancy, said the HMRC documents released on Thursday show there is “beyond doubt” that VAT will arrive from January 1.

He urged schools to prepare for VAT as soon as possible, as they will have to pay VAT when they receive payments from October 30.

This does not apply to any payments for education provided before the VAT increase on January 1.

Mr. Main told it i that schools currently fall into two camps: those that prepare as best as possible and those that hope that VAT will be postponed.

“What happened Thursday has removed any doubt about the urgency,” Main said.

While there was “uncertainty” over payments received between October 30 and December 31, ahead of the January start date, he said: “What we now know as a result of the guidance is that if a school receives payments on or after 30 October and until December 31, they must pay VAT upon receipt of that payment.”

Neil Roskilly, who led the Independent Schools Association from 2010 to 2021 and now advises schools, said the HMRC documents this week “close some potential loopholes” by clarifying that advance payments made before January 1 are subject to VAT on the moment payment is received.

Schools must register for VAT if their total taxable turnover for the previous 12 months is more than £90,000 or if they expect their total taxable turnover for the next 30 days to be more than £90,000.

Schools with a taxable turnover of more than £90,000 have a limited time to register, he said, adding that some schools “will get caught out by this”.

He told i: “It was always planned that something like this could happen and it is a shame because it gives schools even less time to prepare properly.

“One of the things that schools will be looking at very closely is his cash flow. It is always difficult to receive the costs at the beginning of the term. Debtors can accumulate. Unfortunately, it only puts more pressure on schools.”

Mr Roskilly said this means schools are likely to be “less generous” to parents who are slow to pay their bills.

“Some parents are quite late in paying their January bills – not at all schools – but at some schools. Schools are normally very generous when it comes to the time they give, but this sounds like it puts more pressure on that.”

Mr Main said schools should start tracking their turnover “immediately” from Budget Day to ensure they understand the date by which they need to register for VAT.

“What this has done has brought the whole issue forward,” he said. “We were already dealing with January 1 as a date. Now that we know it’s October 30, it has become a lot more urgent.”

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Mr Main said this put “increased pressure” on private schools, especially special schools which are less likely to have financial expertise in-house.

“It is not an industry that has huge resources or funding and can consider paying professional fees to ensure they are compliant – but they will have to,” he said. iand added: “It’s just too rushed.”

It comes after union leaders raised concerns that the government’s introduction of VAT from January 1 next year could be too fast for the sector. This suggests that implementation should be delayed to allow schools, teachers and parents to adapt.

Private schools and tax experts have also warned that there is not enough time between legislation enacting the tax increase and the policy’s formal implementation on January 1.

Last Sunday, the Treasury insisted it would go ahead with Rachel Reeves’ planned 20 per cent increase in independent schools on New Year’s Day 2025, despite a report suggesting this could be postponed.

A UK Government spokesperson said: “In July, the Chancellor announced that from 1 January 2025, private school fees will be subject to VAT.

“We want to ensure that all children have the best chance in life to succeed. Ending tax breaks for private schools will help increase the revenues needed to fund our education priorities for next year.”