Private Schools need to make some big VAT decisions in the next two weeks

Private Schools need to make some big VAT decisions in the next few weeks as they invoice parents for next term’s fees and get ready to start paying VAT over from January.   

 I’ve added a checklist below of the VAT things I’d focus on right now if I was running a private school, - this is going to range from finalising how much VAT to pass on to parents (some schools are still looking at this) through to how to show this on invoices / explain it clearly to parents, pre-empting any questions they are likely to have. If you’ve undertaken a prepayment arrangement you’ll need to decide this month whether it works or not so that you know whether you’re charging those parents VAT in January or not.

 Once you get through all these initial issues, there’s still a lot to look at over the rest of the year as VAT beds in, both in respect of education and other commercial operations.  We’ve seen many schools' partial exemption VAT recovery agreements that won’t be fit for purpose once the education becomes standard rated, and the way some schools are thinking of doing their VAT accounting is going to be labour-intensive and prone to error – there’s a lot to learn here from work we’ve done with other education providers over the years.

We're focussed on ensuring that schools comply with the VAT rules rather than avoiding them, but if I was running a school right now, here’s my immediate checklist of VAT things I’d have my team focussed on:

 Revenue questions

1. Review and confirm the calculations which work out what your net VAT cost will be and how much VAT to pass on to parents immediately and over the next year or so – some schools have been reviewing this again in light of the National Insurance rises announced in the budget.
2. Getting comfortable with the VAT liabilities of revenue streams, including registration fees (you might already owe some VAT in respect of payments taken since 30 October)
3. If you’ve done a prepayment arrangement you need to decide if it worked very quickly – HMRC have set out the conditions they think need to be met and most schools haven’t covered all of them – because if yours doesn’t work you’re likely to owe some VAT on the VAT return covering January 2025.
4. Looking at how you use deposits and whether they’re really deposits for VAT purposes – you might owe VAT on them sooner than you think!

 Communication with parents

1.  Checking that VAT calculations taking in Assisted Places/ Bursaries all interact correctly to arrive at the right final VAT number - is further work needed to get the liabilities right for trickier areas (bursaries, partly funded pupils etc)?
2. Agreeing what invoices are going to show on them/ when to issue them and whether they will be full VAT invoices (can your system cope?)
3. Do we need to send any/ further communications to parents to support the pass through of the VAT on fees to pre-empt further questions?

 Systems and processes

1. How are we practically implementing system changes to ensure VAT on costs is correctly recovered?
2. Is our new process prone to manual error/ more resource intensive than it needs to be?
3. Can the process be automated using technology tools outside the system like Alteryx/ is our process MTD (Making Tax Digital) compliant?
4. What’s our review and sign off process going to be for the VAT return? Who has ultimate responsibility for its accuracy and do we want someone external to review the first few submissions to confirm we’re getting it right?
5. Does the partial exemption VAT recovery method still work / could it be amended to give a better recovery?  (there’s a bit of time to consider this, it doesn’t need to be done for January 2025)

Longer

1. Should you form or change the VAT group in light of the changes?
2. How do we treat VAT on capital projects that are ongoing on 1 January 2025?
3. Capital Goods Scheme – do we need to make adjustments for historical spend/ are there opportunities for additional VAT refunds;
4. Do we want a re-review at year end to make sure we’ve got things right and to look for any extra VAT we can reclaim?

 KPMG has the largest and most experienced VAT education team in the UK, we wrote the ISC paper on the impact of Labour’s policy on private schools, and I worked with the government on policy VAT issues in relation to Academy Schools.  We’re working across the whole private school sector (from Rugby Group schools and PE backed chains through to smaller family-owned schools and other private education providers) so if you need either some last-minute support or you want to have a chat about what you’ve done and whether we could improve it later in the year, let me know - richard.turnbull@kpmg.co.uk

Simon Nathan John Murphie Independent Schools' Bursars Association Independent Schools Council Scottish Council of Independent Schools