Private schools and charity status

[The6thQueen]

Yes, another thread. But, maybe from a different angle?

I'm interested to know how many mumsnet readers know that most universities are charities or are charity exempt (including Oxford). That we don’t pay VAT on university fees, or services from healthcare providers (including non registered, if they are supervised by registered healthcare), including pharmacies and, that private healthcare suppliers fall under this exemption.

I’m raising as Labour’s altered plans with regard to charity status and taxes for private schools may be far more complicated than the public expects. Legalities and the far reaching impact the policies may have beyond education and its VAT exempt status.

I suppose my AIBU is that most of the general public don’t realise the use of charity status and VAT exemption and how removing them from the private education sector is not that simple.

It’s perfectly do-able as the VAT rules are already a mess. Like biscuits are zero rated unless wholly or partially covered in biscuit. Chocolate is always standard rated unless sold as a baking ingredient when it’s zero rated. It’d be easy enough to say education targeted at under 16s in a classroom setting is standard rated, or something similar.

They can take the fake charity status from the business that are private schools without affecting universities but seems it won’t happen anyway.
still 20% VAT on fees will and should go ahead.

If they were genuinely operating like charities children like your daughter would get a heavily subsidised place

Most of us don’t use private schools and most of us are sick of the tax dodging that the wealthy are so good at.

I’m not quite sure what you mean re pharmacies. Do you mean that medicines are exempt from VAT? Well yes but so is a lot of food. It’s the item that’s VATable not the vendor so pharmacies and supermarkets will sell items that do and don’t have VAT added. The basic principle of VAT is that it’s added to non essential items

but we are using non specialist supply teachers and paying agencies, which is far more expensive, because there are no specialist teachers.

The extra children bring extra funding, and the extra specialist teachers being available saves the school money too

And having a long term specialist teacher instead of short term supply teachers is much better for the education of the children

All in all, a good thing if many private schools close. Better for school funding and children's education in the state sector

Universities are open to everyone who can pass the entry criteria and are willing to pay £9k a year in tuition fees. Private schools are open to everyone who can pass the entry criteria and are willing to pay the average fees of £15k a year.

And aside from £6k what is the difference ?

@Whereforartthoudave do you understand what charity status actually means? Have you looked into it?

Pretty much all pharmacies in the UK are private businesses (even those run through the hospitals), they are all exempt from VAT.
Oxford university has charity exempt status.

Universities are becoming the world of the wealthy. We’re going to struggle to afford to help our children attend. One of my students was told by her parents she could go following her exam results because they couldn’t afford to as her bursary wasn’t big enough. The cost of her and her two brothers attending would be too high. I can guarantee if they take the exemption from private schools, it will need to be removed from other education providers too.

There are people struggling to feed their families.

There are people whose small businesses went down through Govt action.

There are farmers leaving the land they had for generations.

At a recent group meeting of tax disputes practitioners, all of them had recent experience of client suicide.

There is nothing more virtuous and useful than having a small business that provides services to others and feeds your family.

Healthcare exemption doesn’t necessarily require charitable status anyway.

Yes. Hospices should pay tax on their profits. Do they have any? And face the same level of Govt scrutiny as people trying to feed themselves.

I really feel for people in your position. And not even just families with children who have diagnosis and EHCP, there are plenty of children who just struggle in mainstream state schools and need smaller class sizes etc in order to manage at all with parents just doing the very best they can.

If VAT is being added to private education does that also go for tutoring? Music lessons, drama lessons etc?

It's not that complicated, they just need to amend the list of eligible bodies as set out in VAT Notice 701/30.

It's been amended before, it's not rocket science.

@R37sraY but private schools that are charities don’t make any profits? They have no shareholders etc, that’s the whole point of the status. Like hospices and money left gets plowed back into giving education and the buildings. They can’t use it for anything else?

Labour have already agreed they are likely going to leave private schools charity status as is.

but they will implement VAT on private school fees - taxing children’s education when parents are already reducing costs on state education.

this is because they don't have the balls to go after the Uber rich - Russian oligarchs and global corporations like Amazon making mints of the public. The rich will continue to get richer and Labour will continue to make punitive changes to aspirational families

how so? Don’t understand the logic here.

I don’t think it will.

They are attacking independence. It’s not about money.

Govt controls almost all the universities and won’t attack itself.

Separate question whether degrees are worth it. This is something every teenager now needs to consider. What will her career look like with a degree, what will it look like without? Is that worth c.£100k with interest by the time she pays it back?

If she expects lower pay, is it worth the extra 9% tax annually for 30 years?

On day 1, will she have a competitive advantage at all over a school leaver who by now has three years of experience and maybe ATC, ACCA etc

@R37sraY I’m not sure it’s about attacking. I think it’s more to do with desperately trying to get money, without pissing the voters off too much. Going after ‘evil, Uber rich’ private schools is an easy win. Most voters will never look into the modal (not mean) cost of private schools. It will be easy to paint universities with the same brush in the not too distant future. Universities make millions every year, far, far more than any private school. And, with the public mindset questioning the point of going, again, it’s an easy win.
Although, I’m totally with you on it being an important decision about whether it’s worth going, there are many pathways to the same destination now.

Good point. I think you may be right.

@Sparehair have a look into private pharmacy tax loopholes.

And the suggestion that any VAT would ‘simply be added to education for those under 16’, it’s not that easy! You’d wipe out music tuition, sports coaching and private tutors in one fell swoop.
Of course it’s doable, but it’s not the clean cut it’s being made out to be. And will have ramifications far beyond a few private schools closing and a drop in the ocean of money for the state education sector.

Well they’re not going to get any more money out of me by putting VAT on school fees - because I’ll just have less money to spend on other things (that I would also pay VAT on…) that must be true of a lot of people?

I’m not a tax avoider by any means. I pay a lot of it and (until the tories started spaffing it up the wall) happy to pay it, because I believe in the welfare state. VAT on school fees just seems ill-thought out to me. It won’t stop me voting Labour at the next election, but I’m sure it will stop others.

I'm a tax lawyer and also interested in how this would be implemented. I agree with pp that VAT is a bit of a mess anyway so taking private schools out of the VAT exemption won't necessarily make it noticeably worse.

But the education exemption will end up being very odd and inconsistent - i.e. VAT charged on education for children but not for adults (because universities and training providers for adults will presumably retain exemption). This includes providers like law schools which are expensive and not generally covered by the tuition fee loan scheme (fees are usually covered by law firms for their trainees). Plus what do you do about vocational training courses for 17 year olds - is a full time vocational training course a school?

You then potentially have e.g. music lessons and swimming lessons out of school exempt but VAT charged if a music lesson or swimming lesson is provided in the context of a private school (unless the private school can find a way to split out that element and exempt it). And you have to decide what to do about tuition in e.g. maths and english outside of a school context, which would currently often be exempt.

If they try to keep education for children with SEN exempt that's even more complex.

You also have the issue of a significant divergence from EU law. We have generally tried to avoid this so far as it causes all sorts of legal issues.

I think it is an "attack" much more than a money maker though. There would be many easier ways to raise the amount of tax involved and it is very hard to predict the amount this policy might raise. Private schools are likely to delay capital projects until after the exemption is removed so that they can claim back VAT on construction costs - the wealthier private schools spend millions on these sorts of projects so that could have a significant impact. There is then the displacement of students into the state sector, which will be uneven and may result in needing additional classroom space in some areas. Plus some parents will pay years of tuition fees in advance of the VAT coming in which will reduce the VAT received in the first few years.

But in terms of private schools being charities, plenty of charities are businesses. They just need to have an asset lock so that shareholders can't take profit out and it has to be ploughed back into the charitable purpose. Private schools are some of the first charities and a lot of the point of charity law is to transcend politics so that charitable status can't just be removed on a political whim.

why Do you think teaching in the state sector offers better pay and conditions? Nonsense I’m afraid. Unless of course state schools have suddenly started to offer: smaller classes, more resources, free lunch, less micromanagement, fewer statemented pupils, better behaviour etc etc

this doesn’t mean private school teachers are better than state school, not at all. It just means a large percentage would not want to swap to state school. It is a different environment.

I agree with this, and definitely don’t think VAT should be charged on uni fees (young people get too rough a deal as it is, these days, without adding yet more to their burden).

@Circe7 you’ve made my point far more eloquently than I did!

I wouldn’t be able to send mine. I’ll put what school fees we would have spent into solicitors for spanking ehcps including state funded private schools like a semh. Council will pay for transport, the document will last till they’re 25. I’ll take up teachers and school staff time making sure my kids get what they’re legally entitled to which will be iron clad in the ehcp I will pay privately to make excellent clear legal provisions for the kids.

id rather a small community school with tiny class sizes and the provision for sensory needs and dyslexic learning styles.

without this the kids will need to be mainstream educated until they inevitably crash - push against resources in CAMHS and they’re secondary school and probably need to be home educated for a stint.

educated resourceful parents like myself pushed out of private education are going to be a fucking nightmare for mainstreams.