VAT on prepayments made before 29th July

[blackheathdad]

Hello what are private schools telling parents who prepaid school fees before the 29th July ? Are they going to still get VAT attached or not ?

It looks like if you paid before 29 July for fees already set then you won’t need to pay VAT on those fees. Fees should have been set for the next academic year but there is more of a question mark over subsequent years.

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

The draft legislation suggests that VAT won't need to be added if fees were paid before 29 July. What I'm less clear on is how schools are going to sort their invoicing. Input VAT needs to be accounted for somehow, which I would have thought would be done by reducing the fee amount. They might have to differentiate between those who've pre-paid and those who haven't.

HMRC still have to weigh in on how they plan to treat the tax point of prepayments, especially those beyond one year. I believe that they have four years from any potential tax event to raise objections and contest a filing; any dispute resolution can take a long time after that, particularly if litigation is involved, so there's the potential for uncertain liabilities for many years to come.

To make the governors' jobs even more difficult, it's also possible that HMRC's eventual positions will be conditioned on the exact terms of the prepayment scheme, e.g., whether the prepayments are designated for specific services (specific terms or years of instruction) or whether they're merely advance payments to be drawn down as payments come due; whether the prepayments are kept in separate escrow accounts or whether they went into general accounts; and, possibly, the extent to which the prepayments are refundable.

I believe that any potential liability is on the school, i.e., if HMRC take the position that the tax point is at the beginning of each term (or each school year) and this position is ultimately upheld, any schools which did not invoice for VAT would need to make good the deficit. I suspect that some schools may decide to "reserve" VAT out of any prepayments until the situation has been clarified.