91探花

During the summer, many independent schools will have taken the opportunity to earn extra revenue by providing facilities to English as a Foreign Language (EFL) providers. Typically, this consists of residential accommodation, catering for the students, and a classroom space.

The current educational VAT exemption for independent schools also covers services described as “closely related” to education, where they are supplied to another eligible body. A commercial provider of EFL qualifies as an eligible body and there is no requirement for the provider to be non-profit making. “Closely related” services should be:

• For the direct use of the pupil, student or trainee.
• Necessary for delivering the education to that person.

As such, under current rules, when schools provide accommodation, catering and teaching facilities to other eligible bodies, those services can be treated as VAT-exempt as “closely related” to education. 

If schools also make teaching staff available to the EFL provider, this will qualify for exemption as a supply of education in its own right. This includes the supply of classroom assistants. For non-teaching staff, further advice should be sought to determine whether the duties performed can be classed as “closely related” to education.

Please note that supplies to EFL providers by school trading subsidiaries that do not meet the eligible body criteria do not qualify for exemption under the same legislation and should be considered on their own merits to see if exemption is available under a different part of the law, such as the land exemption.

Once a change in law is enacted to make school fees taxable, the above treatment should be reviewed in light of the new legislation. 

Upcoming changes to legislation

HM Treasury has published draft legislation and an impact statement with accompanying technical guidance. The draft legislation now excludes (carves out) from exemption the provision of education and boarding supplied by private schools, and these services will be subject to VAT with effect from 1 January 2025. Other services described as “closely related” will retain the exemption, on the basis that the private school is still an eligible body for the purposes of the VAT exemption.

The exact wording in the Treasury Note is that “other 'closely related' goods and services other than boarding (i.e. goods and services that are provided by a private school for the direct use of their pupils and that are necessary for delivering the education to their pupils) will remain exempt from VAT”.

These closely related supplies are then further specified as catering, transport, books and stationery. However, it is still unclear whether catering provided with boarding can remain exempt or whether the exemption will only apply to daytime meals or meals for non-boarders.

Since private schools will remain eligible bodies for VAT exemption when supplying goods or services closely related to education provided by another eligible body, such as an EFL provider, these supplies will remain exempt. 

Supplies by EFL providers will continue to be VAT-exempt on the basis that they do not meet the definition of a private school by virtue of the fact that they do not provide full-time education.

However, EFL provision by a private school will no longer benefit from exemption.

The Treasury held a consultation that closed on 15 September 2024, so it remains to be seen if any further clarification will be forthcoming once they have considered the responses. We are also aware that the Independent Schools’ Bursars Association (ISBA) is seeking counsel opinion on the impact of the impending changes on a number of detailed technical matters, which have not been addressed or made clear in the Treasury Note. 

If you would like more information about the topics discussed in this article, please contact John Foskett.