VAT on private school fees from 1 Jan (not charged on advanced payments made before today)

[SchoolparentVAT]

Looks like the treasury has just confirmed that VAT will be payable on school fees relating to next January’s term onwards - but not for those who have prepaid before today who will not pay VAT.

However it is also said that the government stands ready to challenge lump sums paid in advance where the fees have not yet been determined.

https://assets.publishing.service.gov.uk/media/66a7a1bdce1fd0da7b592eb6/TechnicalNote-_DIGITAL.pdf

Lump sums paid in advance where the fees have not yet been determined? What school sets their fees more than one year in advance? Parents have to pay the difference each term if there is a rise in fees. The prepayment doesn't lock in the price - it gets you a small reduction for interest.

Yes, so people who have prepaid for 24/25 look like they’ll definitely be clear of VAT.

However prepayments for 25/26 onwards may be subject to VAT - still up for challenge.

Not sure, if people have paid for Sept 24 - July 25 before yesterday BUT the school has not yet announced their fees for next year then it may not be VAT exempt.
Our school sent an email offering it as an option a few weeks ago but said VAT may still be applied.
We didn't do an advance payment anyway and I only know of one person who did (may be more though) but as its only a couple of hundred £ more at most and DS leaves in June next year we will just suck it up

why would prepayments for subsequent years be under question

if you get a invoice for 2 years and pay that invoice how do you become liable to VAT ?

Because the school may not have fixed its fees for 2+ years in the future, so there’s a question mark over whether the pre-payments are actually buying something specific/determined at the point of payment or just tax avoidance

The relevant paragraph of the treasury note is:

2.32
The government is aware that, whilst many schools have always offered schemes enabling pre-payment of fees, there have been reports of increased numbers of parents utilising such schemes recently in an attempt to avoid these fees being subject to VAT. In many cases, the structure of these schemes means that the tax point has not yet been passed. For instance, if the scheme involved paying a lump sum to the school in advance, but the details of the supplies that the money was buying were not determined at the time the money was paid (i.e. if the money paid did not relate to specific terms' fees that had already been set), HMRC stands ready to challenge the validity of such payments and will seek to collect VAT on those fees where it is due. Indeed, the government is committed to tackling tax avoidance and in line with the principle to ensure that the changes are fair and that all users of private schools pay their fair share, HMRC will be carefully scrutinising the detail of these schemes to ensure that schools pay the correct VAT where it is due.

We paid a years fees in advance. It saved us £8k in vat. According to the year group WhatsApp, most parents did it and most put it on credit cards.