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Fees in Advance schemes - what is the update?

on Wednesday, 30 October 2024.

The law is changing. VAT will apply to school fees from 1 January 2025. But what about fees that were prepaid before 29 July 2024 under Fees in Advance schemes?

"Payments received before 29 July 2024…..Where a payment creates a tax point for VAT purposes when the payment is made, no VAT will be due." (HMRC guidance, published 10 October 2024)

The 29 July Technical Note included statements such as "in many cases, the structure of these [FIA] schemes means that the tax point has not yet been passed", and promised that HMRC would take steps to scrutinise the detail of the schemes.

In the new guidance, published on 10 October, the tone is slightly different.

The Treasury has confirmed that if a FIA scheme creates a tax point for VAT purposes before 29 July, VAT will not be due on the amounts prepaid before 29 July. The guidance continues to include links to existing HMRC guidance setting out the existing and established principles for determining a tax point.  

This is positive news.

Some of the new guidance issued by the Treasury on VAT and school fees conflicts with existing VAT principles and guidance. This created a concern that the Treasury might impose a new standard in relation to tax points and FIA schemes.

The 10 October guidance, however, confirms that existing VAT principles and guidance will be used to determine when a VAT tax point is established for FIA schemes. This is also an indication that HMRC has accepted the concept that FIA amounts paid before 29 July are outside of the current VAT regime as they received their VAT treatment on the date they were received by the school. This will be a comfort to schools when calculating their January billing run, as this impacts the VAT treatment of those amounts prepaid for that term.

The VWV Taskforce have already helped numerous schools with how FIA amounts should be shown on January invoices and in management accounts.

As with any contractual arrangement, the VAT treatment of funds received under a FIA should be considered in light of the scheme's specific terms, the timing of the payments and whether the contract was validly entered into.


For more information, please contact Susie Luckman in our Independent Schools team on 07468 698 972, or complete the form below.

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