Question to the HM Treasury:

To ask the Chancellor of the Exchequer, if she will give further education corporations the same VAT status as Multi Academy Trusts and 16 to 19 Free Schools.

On 29 July, the Government announced that, as of 1 January 2025, all education services and vocational training provided by a private school in the UK for a charge will be subject to VAT at the standard rate of 20 per cent. This will also apply to boarding services provided by private schools.

Any fees paid from 29 July 2024 relating to the term starting in January 2025 onwards will be subject to VAT. Furthermore, where a school in England has charitable status, the Government will legislate to remove their eligibility to business rates charitable rate relief. This is intended to take effect from April 2025, subject to Parliamentary passage.

This includes independent schools, part-funded by overseas governments, bi-lingual schools, and faith schools. The final policy design will be confirmed at the Budget.

A technical note setting out the details, alongside draft VAT legislation, was published in July and is available here:

https://www.gov.uk/government/publications/vat-on-private-school-fees-removing-the-charitable-rates-relief-for-private-schools.

Business rates are administered by local government. Therefore, local authorities are responsible for determining eligibility for reliefs, including with respect to dual-use locations. Charitable rates relief is available to properties deemed to be ‘wholly or mainly’ used for charitable purposes. Certain properties are exempt from business rates including buildings that are places of public religious worship and buildings used for the training and/or welfare of disabled persons. The Valuation Office Agency (VOA) is responsible for determining whether a property meets the necessary legal requirements to be exempt. Details on final policy decisions regarding the removal of private schools’ eligibility for charitable rate relief will be set out at the Budget.

The Government has carefully considered the impact that changes to the tax treatment of private schools will have on pupils and their families across both the state and private sector, as well as the impact they will have on state and private schools. Following scrutiny of the Government’s costing by the independent Office for Budget Responsibility, the Government will confirm its approach to these reforms at the Budget on 30 October, and set out its assessment of the expected impacts of these policy changes in a Tax Information and Impact Note (TIIN). TIINs give a clear explanation of the policy objective, including details of the tax impact on the Exchequer, business, individuals and any equalities impacts.

These changes will not affect the VAT status of FE Colleges. Maintained schools are funded by local authorities, who are able to recover their VAT through the s33 VAT refund scheme, which aims to ensure VAT is not a burden on local taxation. Academies can also recover their VAT under s33B, to ensure they are not disincentivised from leaving LA control. FE colleges do not meet the rationale for admission to either refund scheme.