Independent schools will not have to charge VAT on refund arrangements they offer to parents, following a High Court ruling.
Many schools offer parents a right to a refund of fees if their child is ill or otherwise unable to attend school, but parents must pay for the privilege, typically 1.5% of fees.
The taxman decided in 2005 that such payments are not VAT-exempt in the way that education services usually are.
Birkdale School, an independent school in Sheffield, challenged HM Revenue & Customs' decision, losing at the tribunal stage but winning in the High Court.
The taxman said there were two supplies of services, while Birkdale said the payments were in fact just part of a single supply, of education services.
'It is a measure of the artificiality of the Crown's case that it has to characterise the Scheme as involving a supply of the entitlement to the refund of fees in prescribed circumstances. I do not believe that anybody would ever have dreamed of describing the Scheme in those terms except for the purposes of a VAT appeal' the Honourable Mr Justice Henderson said.
He ruled that the arrangement was in fact part of a single supply of education.
The school will avoid a £20,000 tax bill as a result of the case.
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