The removal of VAT exemption for private school fees from 1 January 2025 has led many private schools to register for VAT, prompting questions about recovering VAT on goods and services acquired before registration. HMRC has updated its guidance to clarify the conditions under which pre-registration VAT may be recovered, particularly for services used for both exempt and taxable purposes.
Key Points from HMRC’s Updated VAT Guidance for Private Schools:
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Pre-registration VAT Recovery Eligibility:
Schools may recover VAT on goods purchased up to four years before and services acquired up to six months before registration, depending on projected taxable use after VAT registration. -
Clarification on Services Used for Exempt Supplies:
HMRC confirms that some VAT on pre-registration services may still be recoverable if those services are also used for taxable purposes post-registration, using a fair and reasonable method. -
Updated HMRC Example – Full Taxable Use:
For a subscription spanning pre- and post-registration periods (e.g., 1 Sep 2024–31 Aug 2025), a school can recover 67% of VAT if the service is used only for exempt supplies for 4 months, then taxable supplies for 8 months. -
Updated HMRC Example – Mixed Use:
If the same subscription is used 70% for taxable and 30% for exempt purposes post-registration, the recoverable VAT is calculated at 47%, based on the proportion of taxable use during the post-registration period. -
Claim Timing and Corrections:
Pre-registration VAT should be claimed in the first VAT return after registration. Any underclaimed VAT may still be recovered in later returns under standard error correction procedures.
Source: ICAEW
