Amazon to charge selling fees, recommendations to changes to the National Minimum Wage, plans to end non-domiciled tax status, and how changes to tax for private schools could affect you,
UK vendors selling products on Amazon are now subject to 20% VAT fees, Labour push forward with changing the National Minimum Wage and ending non-domiciled tax status, plus we help you to navigate the new private school tax fees.
VAT on Amazon Fees from 1 August 2024
From 1 August 2024, selling fees charged by Amazon to UK vendors will be subject to VAT at 20%.
This is because of a change in the legal entity that charges the fees. Previously, fees were charged by Amazon Service Europe S.a.r.l (ASE), which did not have a UK establishment, so the fees were subject to the VAT reverse charge procedure. From 1 August, fees will be charged by Amazon EU S.a.r.l (AEU), which has a UK branch. This means that AEU must charge VAT at 20% on fees.
Vendors who are VAT-registered will be able to reclaim the VAT, subject to the usual partial exemption rules. Those who are not VAT-registered will see their selling fees increase by 20% because they cannot claim the VAT.
Generally, such increases in VAT are largely borne by the consumer, as vendors pass the increased costs onto their customers.
For more information, see: https://sellercentral.amazon.co.uk/seller-forums/discussions/t/fe8e800e-d95c-42ae-a98b-e6e682547f90
Changes to National Minimum Wage recommendation criteria
The government made changes last week to the remit for the Low Pay Commission (LPC) that will mean it takes the cost of living into account when recommending minimum wage rates.
The LPC have also been instructed to narrow the gap between the minimum wage rate for 18-20 year olds and the National Living Wage. The longer term objective is to remove the age bands altogether and have a single adult rate.
Each October the LPC makes recommendations to the government on the minimum wage rates to apply from the following April. The new remit keeps this process and timeline in place, allowing for businesses to plan for uplifts.
As well as the cost of living, the LPC’s remit will continue to look at the impact on business, competitiveness, the labour market and the wider economy.
Changes to non-domiciled tax status to go ahead
The previous government included plans to end non-domiciled tax status at the Spring Budget and replace it with a 4-year foreign income and gains (FIG) regime. The new government have now announced their intention to continue with these plans, while ending some advantages for existing non-domiciled individuals.
What the change in tax status will mean
Preferential tax treatment based on domicile status will be removed for all new FIG arising from 6 April 2025. This means that foreign income and gains will all be taxable in the UK where you are classed as residing in the UK, not just that included under the remittance basis.
A relief will be available for new arrivals
New arrivals to the UK will have 100% relief in their first four years of tax residence, as long as they have not been a UK tax resident in any of the 10 consecutive years prior to arriving.
Transitional measures
As a transitional measure, it was previously announced that there would be a 50% reduction in foreign income subject to tax for the first year for those losing access to the remittance basis. However, the government has said this will not now happen.
The government has also outlined transitional arrangements to cover FIG that arose before 6 April 2025 and remitted to the UK afterwards – it will be taxed when remitted as per the current rules. A new Temporary Repatriation Facility (TRF) will also be available that allows for paying a reduced tax rate on a remittance for a limited time period after the remittance basis ends.
Changes to inheritance tax included
The government plans to replace the existing domicile-based system for inheritance tax (IHT) with a new residence-based one from 6 April 2025.
The basic test they are proposing for whether non-UK assets are within the scope for IHT will be whether a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event happens. A person will also be kept within scope for 10 years after leaving the UK.
There are also plans to end the use of Excluded Property Trusts that keep assets out of the scope of IHT. Confirmation of how the rules relate to this and how existing trusts are affected will be provided at the Budget on 30 October.
If you are concerned about how these changes will affect you and the tax you pay, please call us at any time and we will be happy to discuss this with you.
See: https://www.gov.uk/government/publications/2024-non-uk-domiciled-individuals-policy-summary
VAT on private school fees: What that means for you
Draft legislation has now been published for the government’s plan to end the VAT exemption for private school fees.
The government is also legislating to remove private schools from being eligible for business rates charitable rates relief. Because business rates policy is devolved, the business rates policy change will only affect private schools in England. VAT policy, however, is reserved and so the VAT changes will affect private schools across the UK.
The current situation for VAT
Currently, private schools, as regulated education providers, qualify as exempt from VAT. This means no VAT is currently charged on private school fees. Private schools also cannot recover any VAT they incur on expenditure.
What will change?
From 1 January 2025, all education services and vocational training supplied by a private school, or a “connected person”, for a charge will be subject to VAT at the standard rate of 20%. Any boarding services that are closely related to this supply will also be subject to VAT at 20%.
For parents this means a likely increase of 20% in private school fees beginning next year. However, since private schools will now be able to claim back the VAT on expenditure they incur. This might provide some latitude for the school to be able to absorb some of the increase.
What if a pupil is being funded by the Local Authority?
In some cases, pupils are in a private school because their needs cannot be met in a state run school and the Local Authority funds this. Where this is the case the Local Authority will be compensated for the VAT they incur. If this is your situation then you should see no change.
Can I pay fees in advance to save VAT?
Unfortunately not. As an anti-forestalling measure, any fees paid from 29 July 2024 that relate to the term starting in January 2025 and onwards will be subject to VAT.
Does this apply to nurseries?
The intention is that nurseries, whether standalone or attached to a private school will remain exempt from VAT.
It will be the fees for children who turn compulsory school age that will become taxable. So, this means that VAT will start to apply when a child begins their first year of primary school.
How about sixth form?
Education and vocational training provided by standalone private sixth form colleges or ones attached to a private school will also be subject to VAT.
However, further education colleges that are classified as public sector institutions will not be subject to VAT.
Is there any change for state schools and academies?
No, state schools, including academies, will continue to be exempt from VAT for education and boarding.
How about other goods and services supplied by private schools?
Outside of boarding, a private school will also often provide school meals, transport and books and stationery. The government has confirmed that other closely related goods and services other than boarding which are for the direct use of the pupils and necessary for delivering the education to the pupils will remain exempt from VAT.
This opens the possibility that a school might limit the amount of VAT they charge by assigning a high value to these VAT exempt goods and services and a low value to the VATable education and boarding services. However, the government have confirmed their awareness of this, and any such practice will be challenged.
The additional fly in the ointment with having a mixture of taxable and exempt supplies is that it can affect the amount of VAT that can be recovered by the school on its expenditure. Partial exemption calculations are needed, and HM Revenue and Customs (HMRC) have said they will provide specific guidance for schools on how to do this.
It’s also been confirmed that VAT will need to be charged on any education after school hours or during the holidays. However, before or after school childcare, or childcare holiday clubs, that just consist of childcare will remain exempt from VAT.
When will private schools need to register for VAT?
Any private schools that are not already VAT registered will need to register from 1 January 2025.
Schools that don’t already make any taxable supplies will be able to register from 30 October. Schools that do currently make taxable supplies, such as hiring out facilities, can choose to voluntarily register early.
If you are involved in running a private school and would like help on what these VAT changes will mean to you or would like training or advice on how to deal effectively with VAT, please call us and we would be happy to help.