Historically, private school fees were exempt from VAT. This exemption was removed with effect for school terms starting on or after 1 January 2025, requiring many private schools to register for VAT. One consequence of this is that VAT incurred before the school registered for VAT may now be recoverable.   

VAT can be recovered on goods and services that are available for use in the business at the time of registration. Goods must have been purchased up to four years before registration and services up to 6 months before registration. The amount that may be recovered depends on a number of factors, including how the goods and services were used prior to registration. However, the rules can be particularly difficult to apply for services.  

ICAEW understands that, in webinars and in replies from the dedicated mailbox for private schools and VAT, HMRC appeared to indicate that no VAT could be recovered on pre-registration services if the services were used for any exempt purposes prior to registration. This conflicted with HMRC’s VAT manual which suggests that a proportion of the VAT may be recovered to reflect the use of the services post registration. ICAEW contacted HMRC to make it aware of this possible discrepancy.  

HMRC has now updated its guidance on GOV.UK to clarify the position. The guidance now states that, subject to other conditions being met, the business can “recover a portion of the VAT relating to the taxable use after registration using a fair and reasonable method” even if it has used that service to make exempt supplies before registration. There is also a helpful example, reproduced below.