Private schools which have, in the last ten years, incurred high capital expenditure, for example construction, refurbishment or renovation works over £250K, could actually find a benefit from the proposed changes. This is because an exempt business is not able to recover the VAT it is charged on such costs. However, the capital goods scheme (CGS) tracks the intention/use of these costs over a ten-year period on an interval basis.
As a result, a private school which finds itself within the scope of CGS may have a right to recover VAT on historic works undertaken. If these costs are significant, there could be a big saving due in the form of a VAT repayment from HMRC. Further, if private schools do become taxable businesses, they will no longer suffer the additional 20% VAT cost on capex as they previously would have.
Will VAT apply to all income received by private schools?
The current VAT exemption applies to services that are closely related to education such as school trips, transport, accommodation, meals etc. Most schools will not have historically needed to consider the VAT treatment of these supplies and should now consider if they can avoid attracting VAT by qualifying for other reliefs. These could include exemption for after school care, zero-rated transport, exempt sports pitch hire and potentially exempt or reduced rate accommodation for boarding schools. This will depend both on the legislative changes and also how schools charge for these items, and is likely to require some contractual changes in order to avail of such easements.