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!

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.

Yes, I believe if your money is ring fenced then it is not seen as a true advance payment for VAT purposes so definitely will not avoid VAT. If your money is not ring fenced it may avoid VAT but it is at risk if the school fails.

Exactly this

The state education sector needs a huge amount of help, no doubt, and should get it. I would actually happily pay extra tax to support investment in state education.

I just don’t believe this policy will be a net fundraiser as we are being told. Indeed it may make the state sector even more stretched and even more unequal if we see an influx of ex-private families into the state sector. And private education won’t disappear, it will just be for the very wealthiest, as those currently scraping together the fees disappear, so creating an even bigger gap.

If policitians believe private education is unfair they should ban it. This policy neither gets rid of the unfairness, nor (in my view) raises money.

Always amazed at how those with so much money are both stupid and unethical.

The danger with brainwave schemes like this, is they generally assume everything else remains constant. And there is no real reason why it should.

I would have thought that people by now would have realised that governments can change whatever laws they like, There is no way you can stop them. Even international treaties can be ignored or overridden if a law makes it so. Parliament being supreme and all that.

I'm not sure why the article suggests it was a rare thing that only 1 or 2 boy's families did. I know when my ds were at school it was done for a variety of reasons.
*When parents were divorced upfront fees were often negotiated so the lesser earning parent didn't worry the dc fees would stop being paid
*contrary to the article fees paid in advance fixed the fee at current day prices so future fee increases were avoided
*there was a slight fee discount for paying upfront
*grandparents paid upfront all fees to reduce inheritance tax on their estate

@LetticeSlay if you dislike the school and leave they refund you. Just like it says in the OP

It's not tax avoidance. It's tax planning.

@Janedoe82 @thebillcollector
So if you order a car and it is ready in 6 months and in the meantime there is a new tax imposed on new car purchases, you are saying you would seek out HMRC and demand they charge you the tax because you paid for the car before the tax came in?

@Grandmasswagbag

Private education is subsidised by taxpayers.
No it's not. Private schools don't get funding from the government so none of your taxes are subsidising them. In fact it is the opposite. The children going to private schools are saving the government and therefore the taxpayer, money. If everyone stopped going to private schools, you would need to pay more tax to educate the increased number of children in state schools.

I'm never surprised how those without much money have absolutely no financial intelligence

Except for the 70% (according to Independent Schools Council) getting tax breaks because of their ‘charitable status’ of course…🙄

So is putting your savings in an offshore tax haven bank

They are being subsidised by the fact they are given tax breaks!

There is another thread on atm where people are suggesting the government should pay private school parents what it would cost to educate dc in state schools like they do in some other countries.
Amazing how different people think such different things.

Which tax breaks?

The provision of all education is currently VAT exempt. There’s no “break” specifically for private schools. Adding VAT just to private schools is the opposite, a special case to apply a tax.

Again, I support the policy. I just disagree with your phrasing.

@SheilaFentiman ’charitable status’ tax breaks (for 70% of them)…I don’t think any private schools can realistically be seen as charities, well, not for the last century or two, anyway.

I rather wish Labour would abolish this perk as well, but they’re not going to.

Ah, ok… I thought it was VAT!

Universities are also charities. I wonder why the 30% of private schools that aren’t, have chosen (?) not to be.

Most independents have charitable status. This takes money directly out of the local economy. And it's completely up to them how charitable they are.

@SheilaFentiman I think it’s quite a lot of admin for charitable status and it may not be worth it for some of the smaller ones, possibly?

@Grandmasswagbag totally agree.

The VAT may or may not be linked to charitable status but it will go some way to correct the inequality. Everyone is assuming the schools will charge parents extra, but they could just make less profit. I would like to see an end to charitable status for PS. The benefit from lower business rates etc and it really is taking the piss. It would make a difference on a local level.

If a school has charitable status they are not for profit and should be putting any surplus funds back into education. They don’t have to pay corporation tax on any surplus.

I assume most of the schools that do have charitable status are the older schools that were set up with endowment funds etc. Providing education is a charitable purpose. Newer private schools might be set up for profit and so would have to pay tax on profits and then profit after tax can be distributed to shareholders rather than being used for education purposes.

For schools that have charitable status if they raise income that isn’t related to them providing education it can be treated as taxable if over a certain limit.

Academy Trusts are also charities so have same rules as private schools, so if they generate income outside of educational purpose they too could be taxed on it.

@crumblingschools thank you for the details. That is interesting about academy trusts.

Its a different business structures work for different aims.

Some independent schools are proprietor owned. So literally one person owns and runs the school, some are companies with directors and again run them for profit. There are some with shareholders too. Particularly in the sen sector.

Whilst there are 'perks' to being a charity. They are business rates relief, not paying tax on investments and being able to claim gift aid on donations. But not all schools have investments and you can set up PTAs for gift aid. Both major political parties were talking of ending business rates relief. Apparently these perks are about £235 per pupil on average so it isn't a huge advantage to operate as a charity over other structures.

The charity schools have an unpaid board of trustees and have to comply with charity commission rules about no profit. Just reserves and reinvesting any surplus. They also have to report on public benefit. the trust own the assest and they normally have to be used for the original purpose if the trust winds down.. The trustees have to act in the best interest of the trust and also act within the scope of the trust. They dont have investors as there is no return on the investment.

This wouldn't work for someone using their own home or land for instance as they would want to own that.

A non charity company could also do stuff like diversify and have investors to expand/improve.

I get a bit irritated by the end charitable status as a parent of an sen child, I prefer the sen charity schools to the ones that are giving a profit to companies in the middle east. I feel like the charity commission code is an extra layer of protection.

Our private secondary school have said advanced payment unlikely to be successful as will likely be clawback.

Because of the timing of the election Parliament will go into recess at the end of July for 2 months. The new Labour government will need to look at exactly how this change might work and should then have a consultation. Only then they can legislate.

I can't imagine the VAT change being legislated before the new School year. More likely new Financial Year April 2025.

To those who think this will help the state system. It won't. It simply will not raise enough money to fix the broken system and it will cause an influx of children into said broken system which will cause even more damage. Many schools are over subscribed which will mean families sending their children further afield - and local gov will need to pay for them to be transported there. It just simply won't work. Also the private schools will become even more elitest! It will make the state school system so much more of a mess than it already is.