What are the VAT considerations for the Education sector?
Education is a particularly complex sector for VAT because the rules differ dependent on the status of the education provider.
Within the State sector, academies may be registered for VAT or may alternatively be subject to the VAT Refund Scheme as conferred by Section 33b of the VAT Act 1994. Which applies depends on the level of income generated from activities which do not fall within the core education provision and whether these exceed the VAT registration threshold.
Multi Academy Trusts are single entities for VAT purposes and so the more academies in the MAT the more likely they will exceed the VAT threshold, but any academy or MAT may also elect to be VAT registered, rather than use the Refund Scheme.
Common to both VAT registered and non-VAT registered academies is the ability to reclaim VAT on activities related to their non business core education activity. This is unique to this sector as in all other cases non business means no VAT recovery.
In the private sector, the 2025 introduction of VAT on tuition fees for both charitable and commercial private schools is the biggest shake-up the sector has seen and has caused many issues for private schools that had little or no previous experience of VAT. The change is implemented by amendment to VAT Act 1994 Schedule 9 Group 6
Not all activities of private schools are liable to VAT and so the schools are required to correctly identify when VAT should be charged and accordingly carry out complex partial exemption calculations to work out how much of the VAT on their costs they can reclaim.
Nursery schools and higher education providers remain exempt from VAT for now but where nursery provision or higher education is supplied by an entity that also provides education for school age children or is connected to such an entity, VAT is an issue.
Then there are the exemptions for private tuition, vocational training and Teaching English as a Foreign Language which are restricted in each case to certain types of eligible body and types of supply.
What are the potential benefits of discussing VAT?
Firstly to ensure compliance. Failing to register for VAT carries not only the requirement to account for VAT that has probably not been collected but also significant penalties and there are no concessions for charities when it comes to penalties.
There is also a risk to just ‘carrying on as we always have’ when it comes to the sector and things do change. There are also ways to streamline and simplify processes such as partial exemption calculations.
Cutting through the jargon and translating VAT into plain English can make all the difference.
I firmly believe that if you can see the logic to why something is as it is, the process and decision making becomes much simpler.
What types of businesses may benefit from discussing VAT?
All types of education provider can benefit from a VAT review, whether it be because they have concerns or just for reassurance that everything is being done correctly.
For private schools that are new to VAT, this is an opportunity to get it right from the outset.
If you are VAT registered and applying the standard partial exemption method, this might not be giving you the best VAT recovery and a review to look at potential special methods may be beneficial.
What is our experience of working with the education sector?
We have extensive experience across this sector and currently work with many academy trusts, some VAT registered and others on the VAT 126 Scheme.
We have recently completed an extensive exercise for a MAT that should have registered for VAT many years ago due to its consultancy and adult catering income but failed to do so. Working with the Trustees, Finance Team and HMRC we have regularised this with a backdated VAT registration, long first period VAT return and partial exemption methodology in place. By being proactive and bringing this to HMRC’s attention with the back-up work done, HMRC have agreed not to impose any penalties at all in this case which was a very welcome outcome for the client.
We work with several private schools who we have assisted with registering for VAT and implementing VAT accounting procedures.
We recognise that one size does not fit all and so we create a bespoke VAT calculation template for each school we work with.
For more information on how UK VAT Advice can help you, please contact us.
