The school is out on VAT …

A proposed amendment to the VAT Act will exclude all activities carried on by schools from the VAT net with effect from 1 January 2026. For some schools this is great news while for others it is a dark cloud around a silver lining.

Introduction

A proposed amendment to the VAT Act will exclude all activities conducted by schools from the VAT net with effect from 1 January 2026.

This is good news for schools who will in future no longer be required to differentiate between activities subject to VAT and activities exempt from VAT. For certain schools though, this will result in an unexpected VAT liability payable to SARS.

This article explores the proposed amendment and the impact on schools.

The status quo

Currently educational services and services closely linked to educational services  are exempt from VAT.

Differentiating between services subject to VAT and those exempt from VAT has been challenging in practice and has often given rise to disputes between SARS and schools.

The new dawn

The proposed amendment will exempt all activities carried on by a school from VAT. In short, this means that anything that schools supply on or after 1 January 2026 will be exempt from VAT.

This means that schools will no longer be required to register as VAT vendors with regard to supplies of goods or services that may be viewed as competing with the general public.

For example, schools will no longer have to concern themselves with the VAT implications of fundraising activities where goods or services are supplied to third parties, for example the annual golf day. Any charges for participating in the golf day (or any other similar fundraising event) will be exempt from VAT irrespective of the amount that is generated by such events.

Too good to be true?

If something sounds too good to be true, it probably is!

VAT registered schools will be required to de-register as VAT vendors and will be required to repay VAT which they have previously claimed on capital goods.

But this cloud has a silver lining …

The proposed amendments include an amendment where schools caught in this unfortunate situation will be allowed to repay the VAT payable to SARS over a period of time. The period over which the VAT will have to be repaid, has not been determined yet.

Anything else?

Only activities conducted by schools will be exempt from VAT. If a separate entity is established for fundraising, the exemption will not apply to such entity and the normal VAT rules will apply. Careful planning should therefore be done before 1 January 2026 to ensure that the future exemption is optimised.

And there is more. Any function that is outsourced to a third-party will be excluded from the exemption. For example, if the cafeteria/snoepie is outsourced to a third-party, the sales of the cafeteria/snoepie will still be subject to VAT if the operator is VAT registered. Any rental/commission payable by the operator to the school will however not be subject to VAT as the rental/commission received by the school will fall into the general exemption with effect from 1 January 2026.

What about current disputes with SARS?

Where SARS have issued a VAT assessments to a school with regard to charges made by the school for goods or services supplied and the school has objected to the assessment, the objection to the assessment will be allowed in full if the school has not paid the assessments.

Where the school has paid the assessment notwithstanding the fact that the dispute has not been resolved, no amount will be refunded to the school.

Planning, planning, planning …

If an assessment has been raised by SARS and the assessment has not yet been settled, DO NOT PAY SARS, no matter how aggressively SARS attempts to recover the debt. When the new legislation becomes effective, the debt will automatically disappear.

The second pre-emptive course of action is to quantify the amount of input tax previously claimed that must now be refunded to SARS. For some schools this will be a significant amount and planning around the financing of the refund cannot be ignored until it becomes an actual liability.

Summary

Schools that are not currently registered as VAT vendors, relax and do nothing!

Schools that are currently registered as VAT vendors, you have some serious planning to do. Start today!