Upcoming VAT changes: Considerations for your contracts with parents

The Government's announcement on 29 July that as of 1 January 2025, all educational services and vocational training plus related boarding services supplied by an independent school, or a connected person, for a charge will be subject to VAT at the standard rate of 20% will necessitate schools to consider the implications for their contracts with parents.

The leading model contracts available to schools contain provisions relating to the application of taxes, including VAT, to school fees. We are aware that great number of schools have incorporated wording to this effect into their terms and conditions. For those schools yet to do this, there may still be sufficient time to prepare and introduce revised terms and conditions to parents of current pupils before January 2025, subject to the provisions for providing parents with notice of changes.

Schools that have not revised their contracts or whose terms and conditions require notice to be provided no later than the last day of the penultimate term before they take effect (i.e. notice provided by the end of the Summer Term 2024 for January 2025) will not be prevented from applying VAT to school fees as the primary obligation to apply VAT arises under legislation, which is currently in draft.

As schools transition from a no-VAT to a VAT environment, certain types of parent contract, including distance contracts (broadly speaking , those which are formed entirely by means of distance communication without an in person meeting between parents and the school) will need to comply with a specific requirement under consumer contract regulations to provide parents with information about the total price of the services to be provided inclusive of taxes including VAT.

Schools' fees lists/fees schedules will need to contain the amount of fees expressed as inclusive of VAT. In addition, the Technical Note issued by HM Treasury on 29 July provides information and examples of other additional services that will be subject to, or remain exempt from, VAT. As such, schools should state on the fees list/fees schedule whether the quoted price is exempt or inclusive of VAT and review the definition of fees in the terms and conditions to ensure consistency.

The application of VAT to school fees will undoubtedly cause some parents to reconsider the affordability of independent education. Most schools require parents to provide at least one full term's notice if they wish to withdraw their child, or to pay one term's fees in lieu of notice. Currently, parents who wish to withdraw their child before the start of the Spring / Lent Term 2025 have until the day before the start of the Autumn Term 2024 to provide notice and avoid fees in lieu. For those parents who provide later notice, schools will be aware of the need to deal with these sensitively and on a case-by-case basis.

For assistance with changes you may require to parent contacts or VAT inclusion on invoicing, please contact James Garside or John Deakin in our Independent Schools team at 07718 384 962 or 07718 384 962 respectivley, or fill out the form below.