Getting VAT ready in the lead up to January 2025

Registration

Now is the time for schools who don't currently make any taxable supplies to start thinking about the VAT registration process. Schools will be able to register with HMRC from 30 October 2024 (schools who already make taxable supplies can voluntarily register before 30 October 2024). When registering for VAT, schools may wish to consider:

• The school's legal structure to ensure ease of reporting
• The date selected for the VAT quarter, specifically with regard to invoicing and payment terms
• The timing impact on cashflow
• Unregistered schools may consider whether it is advantageous for them to register voluntarily now

Schools can register for email updates, videos and webinars here.

Making Tax Digital

MTD is a key part of the government's Tax Administration strategy. It will help reduce the tax gap by requiring business and individuals to:

• Keep digital records
• Use software that works with Making Tax Digital, you can check your software here
• Submit updates every quarter, bringing the tax system closer to real time

Finance staff will need to familiarise themselves with the 'Making Tax Digital' (MTD) requirements, for the compliant submission of VAT returns. There are helpful resources on the HMRC website including a VAT community forum here.

Exempt Supplies

Getting your nominal account code structure right now will save problems later on. Following the consultation period, schools will have greater clarity on which closely related goods and services will remain exempt and could be charged separately from the main school fee for example, catering.

Schools may want to undertake an analysis of their income to determine whether they will be a partially exempt business. We understand that HMRC will be providing specific guidance on this and how a partial exemption will need to be performed.

Invoicing

The government has repeatedly said that it does not expect schools to pass on the full VAT charge, even though schools must now show VAT being charged at 20% on their invoices. Government phrases such as 'schools cutting their cloth' or 'reducing non-essential expenditure' to 'absorb' an element of the VAT charge effectively means schools reducing the headline fee so that when VAT is applied, the total cost to the parent is less than a full 20% increase.

We recommend a review of invoicing practice is undertaken, both how VAT is shown to parents and from the accounting treatment. This may require amendments to the school's parent contract, invoicing templates, funding options and credit control suite.

Commercial Arrangements

In light of the school's changed VAT position, it may be valuable to review and potentially restructure a school's third party commercial arrangements such as catering and facilities hire.

For further advice on any of the practical implications or how we can assist please contact our Schools advisor, Nikki Miller, at 0117 314 5423, or fill out the form below.