VAT on Private School Fees – Political Party’s Dream, Parents’ Nightmare!

VAT has been headlining news in the 2024 General Election campaign.

The Labour Party’s manifesto has not yet been released, although on their website, listed as one of their intended polices is “Closing private education tax loopholes to improve schools. Private schools currently benefit from an unfair tax break that means they avoid paying VAT on fees”.

Whether this can be considered a loophole, or a tax break divides opinion especially where this extends to schools established to teach children with disabilities, as well as those attending the famous Eton.

Why is No VAT charged? Registered independent schools are eligible bodies if they meet the requirements in the VAT exemption for provision of education.

On the flip side, these schools cannot recover VAT they incur on expenditure, unlike state schools and academies. 

Where does this leave these schools and its parents? In a state of limbo and reviewing contracts and budgets.

School personnel for the first time are having to understand their own complex VAT position in case this were to happen.

Do they implement measures that could potentially help in the future? Such as:

  • Adopting a prepayment of fees, on the basis that the VAT point would be the payment date and crystalise the current VAT treatment.
  • Changing the way they invoice parents, to include full itemisation of elements that would have VAT charged at 20%, 0% and remain exempt.

Any measure is open to challenge and historic case law is not in the taxpayer’s favour, each option would be expensive to defend. 

If Labour were to win, the legislation could include an anti-forestalling measure, for example a retrospective start date to stop intentional avoidance, as this change could not be made straight away.

Schools and parents need to consider their positions carefully before trying to mitigate the known, known which might not happen.

“A week is a long time in politics”.

Posted in Internal.