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In this ICAEW Insights episode, we discuss Labour’s proposals for removing VAT exemptions from private schools, as well as our final CPD update before the new regulations come into force.


Philippa Lamb 


  • Ed Saltmarsh, Technical Manager, ICAEW 
  • Liz Shaw, Senior Manager, Professional Standards, ICAEW 


Philippa Lamb: Hello and welcome back to the Insights podcast. I’m Philippa Lamb, with this month’s key developments in accountancy. Today, with the start of a new school year, we’re looking at proposals to change VAT exemptions for private schools. And in our third explainer about the CPD rules coming in November, we’ll have answers to your most frequently asked questions about the new system. Briefing us remotely today, Technical Manager Ed Saltmarsh and Liz Shaw, Senior Manager, Professional Standards. Hello, both, thanks for taking the time to be with us. Ed, can you just explain for us, what are the rules at the moment about VAT and private schools?

Ed Saltmarsh: Needless to say, as with most things in VAT, education is quite a complex area as there are a number of definitions that have to be navigated, for example, what even is education? There is luckily a definition within legislation for that, and it’s essentially a course, class or lesson, or study in any subject, regardless of when and where it takes place. For every definition, there’s been a whole host of case law about what falls within that definition. But today, we’re just focusing on schooling, so that makes things slightly easier. And we can start with a caveat that education provided for no charge, for example, by a local authority or an academy, is outside the scope of that and not the subject of this discussion.

PL: Okay, so private schools only.

ES: Exactly. So where education is provided for any form of payment, that is a supply for VAT purposes, but this education and any closely related supplies are exempt from VAT, where the supplier is an eligible body. The exemption means that private schools don’t have to charge VAT on the supply of education, but as a result of that they also can’t get back any VAT on their costs that directly relate to that supply of education.

PL: How does this affect them then in practice across the board?

ES: The exemption, as I said, it means that the schools don’t charge VAT on the education itself, but they might still have to be VAT registered if they make other supplies that are taxable. Many private schools make incidental property lettings, which can be either exempt or taxable depending on the nature of that supply, or even sales from the school’s tuckshop might be VATable. And this means that the VAT position for private schools is actually quite complex, because they are what’s known as partly exempt, and they have to work out exactly what proportion of VAT on their costs they can recover.

PL: So it’s complex. And we know that the Labour Party are not fans. If they come to power next year – we’re expecting a general election – what are they proposing?

ES: Labour has actually proposed to remove all tax exemptions from private schools, but the most important one, in terms of revenue at least, would be the removal of the VAT exemption. We don’t know exactly how they intend to do it; it seems likely that they would just change the legislation regarding eligible bodies to remove private schools from the exemption. And that would allow them some flexibility about which schools can and can’t benefit from the exemption. Removing the exemption from private schools would mean that they would have to charge VAT at 20% on their supplies of education.

PL: Now Labour expects this to raise £1.6 billion if they can bring that into force. That estimate, it’s been contentious, hasn’t it? There’s widely varying estimates of how this is all going to play out in reality, what the knock-on effects might be.

ES: It’s a really hard figure to pin down. The independent think tank for education skills, EDSK, they estimate that it will raise almost negligible amounts really. And one of the factors that makes such a big difference is how many students would stop being educated privately if the prices went up.

PL: A bare guesstimate is 25% of pupils would drop out, isn’t it?

ES: Yes. Whereas the most recent study that has been published on this is by the Institute of Fiscal Studies, and they use a much lower estimate for the dropout rate of 3% to 7%. They have looked at price increases over the last 20 years, and despite a real-terms increase of 55% since 2003, the number of pupils in private schools has remained pretty much constant at between 6% and 7% of the eligible population.

PL: So their thought it that this is not actually a very price-sensitive market.

ES: Exactly. And as a result, even though you might have to spend an extra £100 to £300 million on state schools, overall Labour’s estimate of around £1.5 billion generated by this policy is actually quite reasonable.

PL: Labour is leading in the polls; private schools, as we understand it, are already making contingency plans ahead of the general election we’re expecting in 2024. What are they doing?

ES: Anecdotally we’ve heard from our own members that some private schools are considering the impact that this change might have on them. And a lot of the planning will be about financial forecasting more than anything else, and estimating the impact on their own position. Just because the VAT rate on the fees might be 20%, it doesn’t mean that private schools will necessarily put up their prices by 20%, partly because it’s a wholly commercial decision on what price they charge, but partly because when the fees become VATable, if Labour get into power and follow through with this policy, it will actually allow the private schools to recover VAT on more of their costs. And the additional VAT that they can recover will depend on each school, what that school’s activities are, what they spent money on, and that will ultimately impact the fees that they charge.

PL: So an individual debate for each school depending on their circumstances, and how robust they feel their appeal is to their target parents.

ES: Exactly. And we’ve seen something similar during the pandemic, when the government introduced temporary reduced rates on hospitality – things like catering and restaurants, cafes – and they actually reduced the rate of that from 20% to 5% initially, and then to 12.5% before going back up to the full standard rate. What we saw was that some businesses who felt they were in an OK financial position, they actually passed on that rate cut to customers and make quite a big deal about doing so, whereas others who just felt like they needed all the extra revenue they could get their hands on, because they were in a precarious financial position, they actually didn’t pass on that VAT cut. And we might see the same with private schools: those in a better financial position might just absorb the additional VAT, whereas others might have to increase their fees by more.

PL: Overall, do you think this is going to make things simpler for private schools or not?

ES: It’s a great question. In principle, removing exemptions and broadening the tax base by making more supplies subject to VAT should simplify the tax. In practice, it may not be that simple, and it will depend on the school. For any individual school, the change may only simplify their VAT if their school fees are currently their only source of exempt income, because that would mean that they are no longer partly exempt and they would become fully taxable, which would make things simpler for them.

PL: I imagine accountants with children in private education… they’ll be watching those numbers very closely.

ES: Exactly. This might have an impact on their fees, or it may not, and also those accountants with an interest or specialism in VAT, they might be looking around for some new clients in this area.

PL: Absolutely. Thanks very much, Ed.

ES: You’re welcome.

PL: Now, on to our third and final CPD update ahead of the new rules launching in November. Liz Shaw is with us to answer some of the most frequently asked questions that she and her colleagues have been fielding from all of you since the rules were announced. Liz, is there a standout question you’re hearing more than any other?

Liz Shaw: The area we’ve had most questions about is actually what counts as continuing professional development, and in particular, what constitutes verifiable CPD. What we say is continuing professional development, CPD, is anything you do to remain up to date in your role, and a lot of what you do each day at work could count as CPD. So this includes things such as watching webinars, reading articles, researching legislation, or even shadowing colleagues, for example. And CPD then becomes verifiable if you can provide evidence of the activity’s completion, so you need to provide evidence which is accurate and independently corroborated.

PL: So how exactly will members have to do that, Liz? Will it be costly?

LS: We do appreciate that some of our members have expressed concern about the cost. But we want to reassure people that that needn’t be the case. And actually, through our Faculties and Communities, ICAEW does provide a significant amount of guidance and support for our members. And this includes things such as webinars, conferences, articles and newsletters.

PL: And you’ve designed a new tool, haven’t you, to verify engagement?

LS: We have indeed, yes, and this content is available on our website, and a lot of this is free within the membership fee. We’re actually saying that anything that you do on our website, such as reading articles and listening to podcasts etc, you’ll be able to use this tool to verify the CPD activity and add it to your online CPD record.

PL: And when will that tool be available for members to try?

LS: Well, the tool is going to be ready when the CPD regulations become effective. And we’re going to be sharing more guidance on how to use that and the online record when they’re released.

PL: Now, as I understand it, members have been asking about on-the-job learning too.

LS: They have, yes, because our members have told us that actually a lot of their CPD is gained through on-the-job learning, and the problem with that is they find it quite difficult to evidence, and that’s largely due to the informal and ad hoc nature. But we do understand the importance of this type of learning and appreciate the need for people to be able to evidence that as verifiable. What we’ve done to help is create a downloadable form that can be used to verify on-the-job learning.

PL: How does that work?

LS: People would access the form and then they would complete it to describe their CPD activity, say why they’re doing it and how it has supported their needs. And then most importantly, they will need to get it signed, by a senior colleague ideally, as it provides the verification needed for the regulations. And then they simply retain that within their CPD record as evidence of the verifiable CPD.

PL: Just to be clear, Liz, do members or firms then need to send all that evidence to ICAEW?

LS: No, not at all. Now, if someone is selected for a CPD check from the Quality Assurance Department, they will be contacted by email and asked to send their records in. But if not, they don’t have to send their records, so they have to retain them. And it’s important that everyone within the scope of the regulations makes sure that they do keep their records and evidence of verifiable CPD for three years until the ending of the CPD activity. But they wouldn’t need to send them in unless they were asked to.

PL: Three years. So if we’re thinking about the first CPD records under the new regulations, how long would people need to keep those?

LS: They would have to keep them for three years after the end of the first year. So it would mean until 1 November 2027.

PL: Got it. Other regularly asked questions, Liz?

LS: Well, another area we’ve had predictably quite a lot of questions in is around who is in scope of the regulations. So the CPD regulations apply to all ICAEW members and individuals who are also regulated by ICAEW. So this includes people such as responsible individuals, key audit partners, insolvency practitioners, for example. But we will find that some people are exempt from the minimum CPD hours requirements, and that will be the case if they don’t provide any accountancy, finance or legal services, and they don’t act as a trustee, a director of a company or the equivalent level of responsibility.

PL: Okay.

LS: We have been asked what this means, though, and we’re saying that any work, any work that they do that relates to the broad profession of Chartered Accountancy, is likely to be considered accountancy and finance work. But if they’ve moved into a different profession, for example, marketing or whatever, that wouldn’t be finance work at all.

PL: But essentially, you’re saying the vast majority of members, they are going to be in scope, aren’t they?

LS: Yes, we do expect that the vast majority of ICAEW members will actually be within scope, but the scope of the activity is wide, and this can include work undertaken, whether in a chartered accountancy practice or outside of practice, such as working in a finance department, or management of a business or charity or whatever. What we suggest is that people do check our website, because we’ve included plenty of examples of accountancy or finance work on there. And actually, if people are in doubt about whether or not their role is a finance role or accountancy role, then please check.

PL: Now I know you have also had quite a lot of queries from members who are retired, and people who are thinking about retirement?

LS: We have, yes. Just to reassure people, if people are fully retired and they don’t do any work at all, then they are going to be exempt from the CPD regulations. All that we ask is that they document that, and document that they’re exempt, should they be selected for a check from our Quality Assurance Department.

PL: But there are some exceptions there, aren’t there?

LS: If you volunteer as a charity trustee, or in a senior finance or executive role for a charity, you will be subject to the revised CPD regulations, and you will need to complete the annual ethics training plus some other charity-specific training. This will be available on icaew.com or you can actually select your own if you would prefer.

PL: What about people who are thinking about retiring?

LS: For anyone thinking about retiring, and if they’re going to retire during a CPD year, they must carry out at least a pro rata amount of hours for their CPD category, from the start of the CPD year until the time that they actually retire.

PL: Now these changes, they are coming soon, aren’t they? It’s 1 November, isn’t it?

LS: It is, yes, that’s when the new changes are going to be introduced. And we’ll continue adding guidance and support over the next month or so and then beyond, to make sure that people can understand and get ready for the changes ahead. In fact, there are five steps on our website, as well as a whole host of guidance and case studies explaining how the new rules apply in specific circumstances.

PL: And you’re going to be sending out emails too?

LS: Emails will appear in members’ inboxes later this month, and that’ll point to the latest information to help them understand their requirements and identify the correct category. These will also be pointing to a series of new video guides that will be published on our website. So those are going to give an overview of the changes and then provide more of the things I’ve touched on today, including what counts as CPD, what we mean by verifiable CPD, who is affected by the changes, and the CPD categories and the minimum hours requirements.

PL: Okay, so there is plenty of information, and there is a webinar as well, isn’t there, coming up?

LS: There is. On 27 September we’re going to be hosting a live webinar. specifically discussing the requirements for firms. You can find the link to register on icaew.com/cpdforfirms. And I’d certainly encourage people to sign up for that if they haven’t already.

PL: Are you getting the sense, Liz, that most accountants have taken on board that CPD is changing, and there are things they need to do.

LS: Yes, I would say so. We’re seeing that our members and firms are certainly engaged in the new requirements, and they’re looking at how they carry out their CPD, as well as understanding the changes that they need to make. And certainly in a lot of cases, it seems that they won’t have to make too many changes because they actually carry out sufficient levels of CPD. However, the biggest change is probably going to be to make sure they retain the records, particularly where they want to classify this as verifiable CPD.

PL: Liz, Ed, really helpful briefings. Thanks very much for your time.

ES: You’re welcome.

PL: There is more information on both those topics in the show notes for this episode and, as Liz mentioned, on the website. Join us later in the month for September’s In Focus podcast, when we’ll have an expert panel discussing professional ethics, and trying to answer the really fascinating question: why do good people do bad things? The Insight series will return in early October. Meantime, please do take a moment to rate, review and share this episode, and subscribe to the series on your podcast app. And remember, if you sign up to daily, weekly or monthly newsletters from ICAEW Insights, you’ll get all the latest accountancy news in your inbox, but only as often as you want it. Thanks for being with us.