Private schools win tax exemption battle

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.

Further Reading:

Read the High
Court judgment

Read
the Tribunal judgment

Related reading

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