From 1 January 2025, VAT will apply to the provision of education and vocational training by private schools.

Summary

The VAT exemption for education and boarding services provided by private schools has been removed. This means that, as previously announced, from 1 January 2025 all education and boarding services provided by private schools will be subject to VAT at the standard rate of 20%. The services subject to VAT will exclude the provision of teaching English as a foreign language, education provided in a nursery class and the provision of higher education courses.    

Any fees paid in advance, on or after 29 July 2024 that relate to terms starting on or after 1 January 2025, will also be subject to VAT.   

The imposition of VAT on private education is expected to raise £1.5 billion in 2025/26, rising to £1.7 billion in 2029/30. The policy objective is to raise revenue to support the Government’s commitments for the 94% of children who attend state schools. 
The Government only expects around 6% of the current private school population in the longer term to move from the private sector and predicts only 3,000 out of 600,000 children in private education (that is, 0.5%) will move to state schools in the current academic year.    

Taking into account the ability of private schools to recover VAT on costs that relate to taxable supplies, the Government believes that on average schools will be liable for VAT amounting to approximately 15% of fee income.

Our comment

Despite substantial representations to the Government to delay the introduction of VAT until September 2025, it is now confirmed that private school fees will be subject to VAT from the start of 2025.

This leaves a very short period for private schools to review and prepare for the fundamental change in their VAT position. The majority of private schools have never been registered for VAT, so will quickly need to determine the effective date to register from and to submit applications for registration in good time.

Although HMRC has recently issued guidance for schools on the VAT changes, the VAT rules are complex, especially in the case of schools that generate income from many different sources. Schools will also need to consider the recovery of VAT incurred on expenditure, including any major expenditure projects in the last 10-year period where an element of the VAT may now become recoverable.         

The Budget contained a significant number of changes and consultations on environmental taxes aimed at reducing carbon emissions and promoting the circular economy. 

Summary

• As previously announced, changes to increase and extend the Energy Profits Levy are effective from 1 November 2024 and measures are proposed for tax relief on decommissioning payments for assets transferred from oil and gas companies to carbon capture usage and storage companies
• Air Passenger Duty made the Budget speech, with proposed increases to rates and consultation on significant changes to extend the application of the higher rate to private jets
• The UK Carbon Border Adjustment Mechanism (CBAM) was confirmed to be introduced from 1 January 2027, with the removal of the ceramics and glass sector from the scope and with an increased registration threshold of £50,000
• A series of planned rate increases were announced for the Soft Drinks Industry Levy to increase the rate by 27% over the next 5 years and introduce annual CPI based increases. The Government is also planning to review the sugar content thresholds and the exemption for milk-based and milk-substitute drinks
• Plastic packaging tax (PPT) will increase to £223.69 on 1 April 2025, and further consultation will take place to develop a mass balance calculation to validate the use of chemically recycled content
• As announced in the Spring Budget, landfill tax rates increase to £126.15 per tonne for the standard rate and £4.05 per tonne for the lower rate
• A new tax conditionality consultation has been launched to tackle tax evasion and the hidden economy which proposes that businesses in the waste, animal welfare and transport sectors will be subject to a tax check when they apply for a licence or renew their licence
• On fuel duty and fuel pricing, the fuel duty cut has been extended by 12 months and the planned RPI increase has been scrapped, maintaining another year of fuel duty freeze. Alongside this measure the Government introduced a new ‘fuel finder’ scheme and a new regulator to address concerns about the lack of transparency and competition in fuel pricing
• The main rate of Climate Change Levy will increase to £0.00801 per kWh for electricity and gas from 1 April 2026, but the Carbon Price Support (CPS) rate remains frozen at £18 per tonne
• The Aggregates Levy will increase to £2.08 per tonne from 1 April 2025

Our comment

These announcements show significant progress on several long-awaited initiatives. The Government has demonstrated its commitment to achieving net zero and advancing the circular economy through the measures announced, as well as the consultations launched today.

The Chancellor has announced a flat-rate excise duty on all vaping liquid from 1 October 2026.

Summary

Following a consultation, vaping products duty introduces a flat-rate duty of £2.20 per 10ml on all vaping liquids, regardless of their nicotine content. The Government’s stated aim is to fund public services like the NHS and smoking initiatives which support a smoke-free UK.

Also from 1 October 2026, the Government will introduce a one-off increase in tobacco duty, to ensure the duty on vaping does not make smoking more attractive.

Similarly, the Government will renew the tobacco duty escalator at RPI+2% until the end of this Parliament. It has also been announced that the rate on hand-rolling tobacco will increase by a further 10% above the escalator, to reduce the gap with cigarette duty. These changes take effect from 6pm on 30 October 2024.

Our comment

The new measures will obviously affect consumers through increased pricing, but importers and producers of vaping liquids will also be impacted. The Government’s objectives for the duty were updated following the consultation, with hopes that the measure will make steps towards reducing the number of non-smokers and younger people using vaping products. Likewise, the increases in tobacco duty will continue to incentivise the switch to vaping for those already consuming tobacco products.