Independent Schools: Preparing for the August 2025 VAT Return
Key steps to maximise recovery and avoid underclaims.
Written by Narrow Quay Solutions' Steve Hodgetts
The forthcoming VAT return requires most schools to make their partial exemption annual adjustment. This is also an opportunity to ensure VAT recovery pre-1 January 2025 is maximised, as many schools did not have time to set up their VAT accounting systems pre-1 January 2025. Many schools have underclaimed simply because they did not have time.
Partial exemption requires a longer period adjustment to smooth out quarterly fluctuations. Most schools arrange their 'tax year' with their financial year end, usually 31 August. Returns submitted since VAT registration (or from 1 September 2024 if registered earlier) are aggregated together to produce an average level of recovery. Schools need to consider the following:
- Pre-registration input VAT is not included in this calculation and a separate calculation is likely to produce a higher level of recovery
- Schools which were registered from a date pre-1 January should review expenditure from 1 September 24 to 31 December 2024 as this VAT will be recoverable providing the expense was not wholly used before 1 January 2025.
Special rules apply to capital goods (primarily building work costing more than £250k), but it is usually better to claim as the cost is incurred rather than making a claim over the 10-year adjustment period. For capital works completed pre-1 September 2024, a claim cannot be made until two periods after the tax year end e.g. 02/2026.
The annual adjustment also requires the partial exemption override to be considered but most schools will not be caught by this as differences in the calculation must be "substantial". The override requires an overarching view and not just a view on fees in advance paid before 29 July 2024 being taken into account.
For more information on how you might be able to maximise your VAT recovery, or to health-check your calculations please do not hesitate to contact us. Please contact Susie Luckman at sluckman@vwv.co.uk to put you in touch with our specialist VAT consultant.