Navigating VAT
A checklist for independent schools
On 29 July 2024, the government published draft legislation which charges VAT at 20% on education and boarding services provided by independent schools. The measure applies to fees paid from 29 July 2024 in relation to the term starting on or after 1 January 2025.
Our team of VAT specialists have created a checklist of fifteen key questions that school finance teams should consider now that VAT has been added to independent school fees.
- Has your school successfully registered for VAT?
Schools must register for VAT if their taxable turnover exceeds £90,000. Early registration ensures compliance and avoids penalties. - Is your school registered for VAT from the correct date?
VAT applies to fees paid from 29 July 2024 for terms starting on or after 1 January 2025. Schools must ensure their registration aligns with these dates. - Have you considered the VAT structure for your school and whether you are in the most VAT efficient position?
Schools with a trading subsidiary should consider whether they would benefit more from forming a VAT group, which can assist in reducing administration. VAT grouping can also potentially impact VAT recovery so this should be considered before any application is made. - Are the VAT return staggers for your school co-terminus with your financial year?
If not, consideration should be made as to whether the VAT return stagger should be updated to keep VAT accounting and financial accounting in line. - Do you know when your partial exemption year end is?
If your organisation wants to align its VAT year end with their financial year end, you will need to notify HMRC. This could potentially affect VAT recovery, so it should be considered prior to notification being made. - Has your school filed its first VAT return?
Timely submission of VAT returns is crucial to avoid penalties and interest charges. - Was the VAT return filed in accordance with Making Tax Digital?
VAT returns must be filed digitally using MTD-compliant software. Schools should ensure they meet these requirements. If not, it is important to consider what steps could be put in place to rectify this going forward. - When you completed your first VAT return, did you consider the rules on pre-registration input tax for services and goods on hand?
Schools may be able to reclaim VAT on certain goods and services purchased before registration, provided they meet HMRC’s criteria. - Will your school be required to make monthly ‘Payments on Account’ (POA)?
Monthly POA’s are required if your school’s annual net VAT due exceeds £2.3m. Please note that if POA does apply VAT returns fall due at the end of the month following the VAT quarter (the seven-day extension will no longer apply). - What figures did you use for your partial exemption calculation in the first VAT return?
It is important that schools review how income received was treated, including trips falling under the Tour Operators Margin Scheme. - Has your school established when the first interval(s) under the Capital Goods Scheme will be, for VAT incurred on historic capital expenditure?
It is important to establish these dates to ensure that adjustments are made correctly. The application of the rules in this area can be complex. - For VAT incurred on the historic capital expenditure (subject to the Capital Goods Scheme) is your school aware of the below?
- Number of complete years of use prior to registration, and/or
- the number of outstanding adjustments under the Capital Goods Scheme.
- Has your school considered the impact of ‘free’ places on VAT recovery?
Are these ‘free’ places part of the school’s business objectives? Where a non-business apportionment is not applied, has this been appropriately documented? - Has your school considered whether a Standard Method Override calculation is needed at your first partial exemption year end calculation, on account of fees received in advance?
VAT recovery on costs could be reduced by the receipt of exempt fees in advance. - Is your school still receiving fees in advance post 1 January 2025?
Although fees in advance are now subject to VAT, receipt of advance fees may also impact any Standard Method Override calculations and so should be considered when completing annual adjustments.
Rob Warne
Partner, Head of VAT, Customs and International Trade
London
