A new school term and you’ve just laid out for uniform, shoes, PE kit and more. Then comes the bombshell: Amy wants to learn the cello. While we can’t save you the cost of a cello we can save you the VAT. What’s involved?
We are passionate about bringing you all the relevant and most important updates including tax tips, business news and small business advice. Read on to find out about the new VAT saving scheme for parents.
State schools and VAT
Teaching services provided by local authority schools aren’t a VATable supply. That’s hardly surprising; after all they aren’t really in business. However, they have a special status which entitles them to reclaim VAT on purchases they make where these relate to educational services.
A school’s right to reclaim VAT not only applies to purchases directly related to education, but also those closely connected. This can include equipment that children use where it’s directly linked to a subject they are studying. Musical instruments are a good example.
Special VAT scheme
Schools aren’t in the habit of buying musical instruments for pupils to use, but they can purchase and supply them to a pupil’s parents under a scheme that has HMRC’s blessing. This is known as the assisted instrument purchase scheme (AIPS).
How the scheme works
Most music shops are aware of the scheme, but some may need pointing in the right direction. The scheme works like this:
- the pupil and their parents select their musical instrument from a local shop
- the shop or parents contact the school to arrange the purchase of the instrument by the school
- the parents make an agreement with the school to provide funds
- the school buys the musical instrument and recovers the VAT
- it sells the instrument to the pupil’s parents for the net of VAT price. This achieves a one-sixth reduction in the price that would have been paid by the parents in a direct purchase.
Trap. The instrument must be used in the child’s education, meaning they must actually take it to or keep it at school and receive tuition using the instrument. This means the scheme can’t work for large instruments, such as pianos.
Other educational equipment
While musical instruments are the most frequently purchased type of equipment, the scheme can be used for other items.
Tip. AIPS can be used for any equipment a pupil uses at school and receives tuition in. This can include items such as laptops, but only where these are used as the direct subject of the tuition. For example, where your child uses the laptop for a technologies course, but not if they use it for general writing or research (see The next step ).
Private schools banned
The bad news is AIPS only works for state-maintained schools. Education supplied by privately run schools is VAT-exempt, which means that the schools generally aren’t able to register for VAT. Alternatively, if they can register they’ll be partially exempt which will restrict or curtail their ability to recover the input VAT and so use AIPS.