Autumn Budget 2024: VAT Customs Duty

Following a period of uncertainty for the independent school sector, HMRC appear to have taken on board some of the feedback received from schools and other sector representatives over recent months. We are particularly pleased to see two of our main hopes for the Budget addressed.

1. The updated legislation released today has amended the wording that would mean one compulsory school aged child in a nursery class, results in the whole classes’ fees becoming subject to VAT. Where the nursery class is made up of children 'almost wholly' under compulsory school age, (which HMRC’s published guidance has interpreted as 90%), the whole class can be treated as exempt from VAT.
2. A further update to draft legislation has addressed the inequity in the VAT treatment of English as a Foreign Language (EFL). Both schools and other EFL providers will continue to treat EFL supplies as exempt from VAT.

These changes are the result of the efforts from the Independent Schools’ Bursars Association (ISBA), the Independent Schools Council (ISC), and The Heads’ Conference (HMC) following their numerous meetings with HMRC, plus schools’ individual responses during the consultation. Despite efforts to delay implementation not being addressed, it is positive to see that some of this feedback has been taken into consideration.

We anticipate further changes to the current HMRC guidance including points covered below.

• The policy regarding schools who offer free places will state that a restriction of VAT on costs in relation to this free supply of education, will not be required. However, for prudence, schools should continue to model on the basis that a restriction is required until this is confirmed.
• HMRC has confirmed that its intention is to exercise discretion in allowing newly registered schools to recover a percentage of the VAT incurred on goods, during a five-year period prior to registration. This only applies to goods and to schools that are not already registered for VAT and has created a disparity between registered and non-VAT registered schools.

What next?

As with any new legislation, there will be a period of settling in and we can expect further updates to guidance over the next year or two. We will continue to provide updates and we are running a free webinar for schools to attend, you can register here.

The government has published its response to the consultation held earlier this year on the introduction of a UK Carbon Border Adjustment Mechanism (CBAM).

The response confirms that the UK CBAM will be introduced on 1 January 2027, placing a carbon price on certain goods imported into the UK. The government resisted calls from stakeholders to bring forward the introduction of CBAM to 2026.

The UK will be the first country to follow the EU in introducing such a measure, seeking to level the playing field between importers and domestic producers with respect to carbon pricing.

Changes have been made to the scope of goods proposed to fall under the measure from 2027, with glass and ceramic products no longer part of the initial goods in scope. Another key change relates to the registration threshold, which will be set at £50,000 over a rolling 12 month period, an increase on the £10,000 threshold which had been originally proposed.

Who does this affect and how?

Businesses importing goods into the UK from the aluminium, cement, fertiliser, hydrogen and iron and steel sectors will have to pay a price for the emissions embedded in their goods, making periodic returns to HMRC.

Impacted traders will have to obtain emissions data from their supply chain to meet their CBAM reporting obligations, which may prove highly challenging for businesses operating in complex global supply chains.

The first accounting period for UK CBAM will be 12 months, with the first report due five months after the end of the first period, in May 2028. While the initial proposals suggested that quarterly accounting periods would commence for imports from 2028, the government has said that it will continue to consider the approach for accounting and payment periods.

What next?

Impacted traders can now act to prepare for UK CBAM with certainty on when the measure will be introduced, while some of the details of exactly how the measure will operate are still to be confirmed by government. Businesses are advised to act without delay in taking steps to examine their exposure to UK CBAM