Planning around VAT on Private School Fees 

News, VAT,

The Institute of Fiscal Studies (IFS) indicates charging VAT on private school fees would generate revenue of £1.6bn per year, which Labour claim would fund 6,500 extra teachers. This was a major thread throughout the recent election campaign.

Many parents have asked if there are any tax planning opportunities to avoid a 20% increase in private school fees. 

The actual increase may not technically be a full 20% for parents as schools would be able to reclaim some input tax on overheads and property maintenance, potentially off-setting a lower cost base against a slightly higher term fee. 

One strategy involves pre-paying private school fees in advance, if cash allows, often for multiple years rather than continuing to pay each term at a time.  Depending on your circumstances, it may be more cost effective to borrow funds to cover the fees than to suffer the VAT. 

IMPORTANT: There may be anti-forestalling legislation, effective from the day of any final announcement around the imposition of VAT on school fees. Although Labour stated as part of their campaign that any legislation will not be retrospective, the effectiveness of such strategies cannot be guaranteed.

This strategy relies on accelerating the ‘tax point’ for the service, which in this case would be the date when a tax invoice is issued in respect of the supply.

The new Government has, at the time of publication, to make any announcement around the imposition of VAT on school fees. We will of course keep you posted if or when that changes. If you’re concerned that you’ll be affected, please get in touch, as there may be options available that depend on your personal circumstances.

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