Private school payment in advance to avoid VAT

[SadOhShea]

Our DD is at a private primary school. We love it. There is now clearly a very real possibility that a labour government will come in and fees will rise by 20%.

The school have offered parents the opportunity to take part in a payment in advance scheme - where we pay the fees for the remainder of her time at the school thereby avoiding any increases.

They have said were someone to choose to leave the school then you would be refunded for the time you had left IYSWIM.

Are all independent schools doing this, and should we?! It would be a huge layout - she's only in reception so would need to pay six years of fees (school goes until 11) the amount would be over £100k but would save us over £20k if labour were to implement their plan which they obviously are!

I don't care if they use the money to maintain the local flowerbeds. It doesn't stack up. The luxury of Private education is subsidised by taxpayers. If Private schools are deserving of charity status then then can cut their cloth accordingly as state schools have had to do, not pass on the fees to students, and still deliver an exceptional service surely? Oh wait....

Did you believe the brexit bus too?

I DO pay my sodding taxes. Including money that pays towards an education system I don’t use and a benefits system that I claim nothing from. Not even child benefit. We pay quite a lot of tax, thanks.

Everyone uses the state education system, by benefitting from educated individuals. I was privately educated btw, and have no issue with it.

I don’t believe for a second that when you see your wages taken for tax you sit their happily thinking ‘oh I’m so glad my hard earned money has gone to help other people’

What? I am genuinely fine with being taxed to pay for public services. I think it is definitely a preferable situation to not being taxed.

If you want to save £20K just cut back on latté coffee & avocado on toast…isn’t this what we tell younger people who are trying to save this amount for a home deposit?
I await the flack!

If you can afford to pay a £100K bill then you can certainly afford to pay your share of tax.

It's tax dodgers like you that are the reason this country's in such a mess. It's all about me,me,me and giving someone a private education only reinforces this mantra.

I have little sympathy for your dilemma I'm afraid.

I think this would be very risky, putting aside the fact that Labour might close the loophole, you might find the school doesn't work out as planned. We have had to pull a child out of a private school. The relationship with the school broke down rapidly (horrible bullying behaviour on their part), there was no accountability and there was no way they would be returning any fees.

Adding VAT to the service of providing education is not linked to charitable status.

HTH.

I know of a school local to me that allows payment in advance, nothing to do with VAT it's not a new policy and I think it makes even more sense if VAT could be saved

Would it really be possible to earn both a 20% return plus the future fee increases?

I don't have any personal interest as I have neither children at private school nor £100k but to me it seems like it could make financial sense

Absolutely. The number of self employed tradesmen happy to be paid cash in hand rather than declare their full earnings is ridiculous. We have family members raking it in and suspect that half of its isn’t declared going by lifestyle, holidays, cars etc.

And how many people on here berating the OP happily pay for things cash in hand?

Without wishing to start a big argument the issue in this country is that we tax lower earners far too little.

In almost every other country with decent public services the taxes paid by lower earners are significantly higher.

We already over tax higher PAYE earners to a level where there is now an incentive for many to work less which is crazy.

Taxes on wealth is another matter altogether but shouldn’t be conflated with taxes on higher earners, particularly those who do so in PAYE jobs.

This.

if 50% of your salary is going to HMRC, something is wrong. Even on a salary of £1m a year that isn’t possible.

Not counting student loans of course, since that’s your debt.

This tax doesn't yet exist because the government that is proposing it doesn't yet exist. It's solid financial planning to pay in advance if the school is a good school with good financials. They can't bloody claw it back so long as you've paid before it's formally announced once Labour are in power. We've just paid for DS to get through GCSE (in year 8 now). People really don't quite understand how this works. If a private school parent moved their child to state it will COST the taxpayer roughly 8k per year that they don't pay if that child is privately educated. Charging VAT on education is a ridiculous way to improve state schools because it won't. They will raise bugger all doing it this way. This is just starting a bun fight and causing more division. If they upped taxes to raise the dire condition of state schools then I'd be 100% onboard. Am I willing to pay VAT when I'm already saving the state by paying 100% of my child's educational cost? Not a chance.

" They can't bloody claw it back so long as you've paid before it's formally announced once Labour are in power."

It's not clawing it back, per se. It is deciding whether it is chargeable at the point of service delivery rather than at the point of payment.

@Chippytea2 yup. Someone doesn’t understand how tax is calculated.
Just tells you how much traction private school parents have especially on MN looking at the number of threads about this proposed policy.

I don’t happily pay taxes but I do happily benefit from the NHS, state schooling, child benefit… For example, whenever I see medical bills from countries without an NHS, I am immensely grateful that my DS and I survived a birth where we both nearly died and that we didn’t get plunged into crippling debt for the privilege.

This very quickly reminds me that I am actually paying my taxes quite happily.

Of course the tax exists, it's vat. They're just extending their reach.

And yes, it's very possible to "claw back" although not in the way you've phrased it.

If the government decides the point of service (therefore when vat is due) is when the point of supply takes place, such as the start of each school year, you would owe vat. You have effectively prepaid an amount (£100k for example for 5 school years at £20k each), however if point of supply is each school year they will have to charge you £20k + 4k vat so there's a shortfall in what you've paid for the final year. This means it's not only risky as the school may go bust but it also means your £100k has been earning interest for the school instead of your family and you could still end up paying vat.

This will absolutely be dragged through a tribunal with HMRC, and through the entire appeal process.

Sorry that was meant to quote @lighteningkip

❤️

We have kids in 3 different private schools. Before Labour announced there intentions we never intended to apply for an EHCP for our child who has ASD/APD. Now we are in line with thousands of other parents to get an EHCP and get it funded. Her special school costs us 40k a year. I'm more than happy to pass on the cost...we've prepaid on one other child and once the prepayment scheme starts for child 3s school we will prepay that. The only winners in this are going to be the lawyers. The specialist educational solicitor we have engaged said he's never been busier. I agree the state system needs a lot more money but this is a ridiculous way to do it. By the time they pay the bill on all the EHCPs that go through plus the legal challenges I'd be surprised if this adds anything to the pot.

I’d be wary of a school saying that pre-paying will definitely avoid the tax going forward. No one knows exactly how it’s going to be implemented. Some schools won’t even allow pre-payments now. Other schools are allowing pre-payments but saying that they won’t guarantee that VAT won’t become due. Different schools have different pre-payment arrangements. Some have schemes where you pay into a separate fund, so it’s ring-fenced in case the school fails and closes. However, those funds are often billed termly going forward so I would think that wouldn’t avoid a future VAT charge. If you are paying the full amount now and it’s going straight into the school’s funds now, my understanding is that your money is at risk if the school closes.

As another poster said this is the Brexit Bus all over again, this policy will not help state education

Do not do this! I worked at a lovely private school which started to offer this option. Within 6 months it had been bought by another school/owner who was awful. Loads of the parents left and the ones who had paid up front (in some cases 5 years of fees) had to go to court and fight to get their money back. Things can change fast in a school.

They can't bloody claw it back so long as you've paid before it's formally announced once Labour are in power. We've just paid for DS to get through GCSE (in year 8 now). People really don't quite understand how this works

There are various ways in which VAT may apply notwithstanding advance payment. For example the VAT applying at time of servicr delivery. Or Labour declares VAT applies retrospectively to advance payments designed to avoid VAT. (Retrospective tax is unusual but not unheard of). It definitely isn’t as rock solid as you suggest.