We didn’t really expect to see wholesale changes to VAT in the budget, and it is perhaps welcome that we were very well-informed of the Private School changes that were announced. Nonetheless, we’ll take the opportunity to once again re-iterate that tinkering around the edges when working with legislation from the last century really isn’t working anymore. However, at present it was no surprise that Private Schools and their VAT status (albeit expected) was the headline. With so much media coverage, with catchy headline being higher priority than technical explanation, we’ve put together the list below to help you navigate the new (still draft) legislation:
- It is still going to be complex - In a new world of tax points and issues with the change in liability of supplies of education from exempt to taxable, this will lead to issues in relation to when payments are received for education received before the changes. We’ve also identified a potential flaw in the legislation which leaves the liability of catering in Private Schools not as clear as we would like. There are also other exemptions which haven’t changed such as the land exemption, for those schools hiring out buildings. With potential exempt income streams, a VAT recovery restriction may still be required under the partial exemption rules.
- No relief for S.342 special schools - At one point there was talk of an exception for these schools, but sadly this cannot be seen in the current draft of the legislation. Save that is except for the exception to the anti-forestalling rules. This is an odd exception and we’ve seen it misrepresented as an exception to the changes. On the positive side, where payments for places come from the local authority the VAT increase should be able to be charged on the basis the local authority can recover the VAT.
- Capital goods scheme - Going forward, Private Schools should be able to recover significant VAT costs on capital expenditure. It’s been heavily reported of the windfall some Private Schools will get of VAT on capital expenditure on large projects undertaking within the last 10 years. Less well reported is that this is a proportional recovery over the remainder of the 10 years. It’s complicated and probably doesn’t result in an immediate major cash injection!
For any public schools closely following the post budget commentary, now is a good time to have a wider ranging conversation about VAT that extends beyond income alone. There are limited opportunities to recover VAT that has been spent although there may be merit in choosing a VAT registration date before 1 January 2024, or in some cases legitimately waiting to register.
So, sadly the budget brought no simplifications and lots to say about a single change. If you or your clients need assistance with any VAT matter, particularly getting your Private Schools prepared for the coming changes – get in touch.
