Since VAT was imposed on school fees, UK schools have struggled with partial exemption calculations, especially with fees in advance. The article explains that schools should apply the Standard Method Override when the difference exceeds £50,000, complete capital goods scheme adjustments six months after the year‑end, and that HMRC is now probing fees in advance and may inspect returns in person within 12‑18 months.
Schools should use the SMO when the difference between the SMO and the standard method exceeds £50,000.
The adjustment must be completed six months after the partial exemption year‑end exercise, as per SI 1995/2518 regulations 112‑116.
HMRC is enquiring about the timing of fees received and the supporting paperwork/agreements attributing money to specific school terms.
HMRC may begin inspecting returns in person within the next 12 to 18 months.
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