Do Schools Pay VAT?

VAT in the education sector has long been a topic of confusion – particularly with recent political discussions around introducing VAT on private school fees. In the UK, not all schools are treated the same for VAT purposes. Whether a school pays VAT, reclaims it, or is exempt depends on its type, funding, and activities.

This guide explains when schools pay VAT, the rules for state and private institutions, upcoming changes in policy, and what schools should do to prepare.

Do Schools Pay VAT?

It depends on the type of school. Broadly speaking:

• State-funded schools (including maintained schools, academies and free schools) are generally exempt from charging VAT on their core education services and benefit from special VAT refund schemes.

• Independent (private) schools currently do not charge VAT on school fees, as they fall under the VAT exemption for education. However, they do pay VAT on most purchases and cannot reclaim it.

That said, the landscape may change in the near future, particularly for private schools.

Upcoming VAT Changes for Private Schools

One of the key tax proposals in recent political discussions, especially from the Labour Party, is to remove the VAT exemption from private school fees. If introduced, this would mean:

• Private schools would have to charge VAT (likely 20%) on school fees

• They could then reclaim VAT on qualifying expenses, such as supplies, facilities and services

• The change could increase admin burdens, cash flow pressures and pricing decisions

As of now, no formal date has been set for this change, but private schools should be preparing for possible implementation in the next Parliament if legislation is passed.

How Will VAT Impact Private Schools?

If the VAT exemption is removed:

• Parents will pay more in school fees, unless schools absorb the VAT cost

• Schools would need to register for VAT if their taxable turnover exceeds the threshold (£90,000 as of 2024)

• VAT-registered private schools would need to submit VAT returns, charge VAT on invoices, and manage cash flow carefully

• They could reclaim VAT on capital projects, supplies, and services, but only where linked to taxable activities

Some schools may restructure services, re-price boarding or wraparound care, or split operations to manage their VAT position more efficiently.

Do State Schools Pay VAT?

State schools are usually not VAT registered and do not charge VAT on education services. However, they do pay VAT on purchases, such as equipment, training, and facilities.

To address this, Section 33B of the VAT Act allows certain public-funded schools (e.g. maintained schools and academies) to claim refunds of VAT incurred on eligible purchases. These refunds are processed through the local authority or directly from HMRC for academies.

State schools cannot reclaim VAT on everything – the rules are tied to whether the purchase is for the provision of free education or not.

What About Colleges?

Further education (FE) and sixth-form colleges also operate under complex VAT rules. Many of their core education services are exempt from VAT, meaning they do not charge VAT on tuition fees or most teaching services.

However, this VAT-exempt status also prevents them from reclaiming input VAT on related expenses unless certain conditions are met. If a college generates taxable income through commercial services (such as venue hire or retail), they may be partially VAT registered.

Each college must assess its activities to determine how VAT applies and whether a partial exemption method is needed.

VAT Registration and School Responsibilities

If a school becomes VAT registered, it must:

• Charge VAT on taxable supplies

• File VAT returns (usually quarterly) using MTD-compliant software

• Keep accurate VAT records

• Manage cash flow, especially if VAT is due before fees are collected

• Monitor the £90,000 threshold, particularly if generating income from non-core services like facility hire, catering, or events

Private schools will also need to consider the impact on parents, reputation, and budgeting.

Final Thoughts

Most state schools do not pay VAT on education services and benefit from refund schemes on qualifying purchases. Private schools, for now, do not charge VAT on fees but pay it on costs – and this may soon change if the VAT exemption is withdrawn by future legislation.

With the education VAT landscape evolving, schools should review their VAT position now, take advice if needed, and prepare for the administrative and financial impact of a VAT-registered environment – especially in the independent sector.