If Labour win... are your DCs coming out of Private Education?

[MrsJamesMathews]

Sitting here doing some maths.

It's not looking great.

With increased corporation tax and VAT on school fees, I think we'll be having some very awkward conversations with our DCs schools on Friday.

Anyone else worried?

I have no advice from the POV of the individual family budget, the temperaments of the DC's affected, or when the next natural break point in the schooling will fall.

I'm looking at it much more for the tax POV and what needs to be done to introduce a successor to VAT anyhow. Brexit is going to be hard enough without pissing off the other side over changes which you can do at will in 22 months time. And will probably do better if you use that time in proper planning.

Education is exempt across the whole EU

No it is not. Education is only exempt when the supplier is a "body governed by public law" or another organisation recognised by the Member State as having similar objects. Independent schools are not bodies governed by public law (in essence the term means organisations that are part of the public sector) and the state has chosen not to recognise them as having similar objects. Independent schools currently pay VAT on goods and services provided for educational purposes. If the government recognised them as having similar objects independent schools would not have to pay VAT on these supplies as they are exempt under the same provision (Council Directive 2006/112/EC Article 132).

can i ask a really stupid question please.
What percentage would be added to fees then? Would it apply to all fees or is it done on an individual basis so might not affect some.

Told you it was stupid

What sort of circumstances are you thinking might not be liable for VAT Gilly?

VAT is 20%. So if JC has his way, all fees will go up 20%.

What percentage would be added to fees then? Would it apply to all fees or is it done on an individual basis so might not affect some.

According to the Labour manifesto this is supposed to pay for free school meals for all primary school children. To even get close the VAT rate would have to be 20% so fees would go up by that much. However, that still wouldn't produce enough money. Taking into account students paying reduced fees plus the fact that independent schools would be able to reclaim all the VAT they pay to their suppliers, my calculations suggest that a VAT rate of at least 25% would be needed. But, of course, the higher the VAT rate the more people will switch to state schools, either voluntarily or because their independent school has closed due to lack of students. Having worked the numbers, I don't think adding VAT to school fees will raise much for the government and it may actually cost money overall. However, I expect that, should Labour get in, school fees would go up by 20%.

It would apply to all fees. Just as a shop can't decide not to charge you VAT, similarly a school would not be able to make any such decision. If VAT is imposed everyone who sends their children to independent schools will have to pay.

People spending money on holidays and experiences rather than school fees will not be paying much VAT - no VAT on plane fares and train fares, and if they travel abroad then there is no injection of any money into the UK economy

I think people in general underestimate just how many private school pupils are there only because wage no2 is used for the entire fees. If VAAT was charged, that extra amount wouldn't be able to be found.

Bollocks that it's only 'rich' people who send their children to private.

MrsJames

I'm sorry not to be clear, but even though we do pay a small amount of fees, the school is part of the MDS for music and dance, so fees are paid on a sliding scale of income.
The poor, those completely reliant on benefit pay nothing then at the other end people on 190k pay the whole amount.

However, similarly to other private schools even with the large subsidy there are those on a higher income only just able to pay fees as have large mortgages and/or other non movable expenses, who won't be able to afford the increase.
I was just wondering in my ill educated way how the school would be affected, so asked about percentages.

If schools currently pay VAT on their purchases, then they would be saving money if that changed and education became VATable, especially if they're doing big building projects - because they could then reclaim the input tax. Maybe they wouldn't need to pass on the full VAT amount (or even any) to parents. Just a thought.

The business of running a school may or may not be subject (in whole or in part) to VAT, depending on the status of the school i.e. whether it counts as an eligible body.

The definitions do apply across the whole of EU (and the legal underpinnings to status of schools varies between countries) VAT notice 701/30 governs this.

As you can tell from post and counter-post, this is a fairly complex area. I would be concerned if changes were brought in precipitately or in isolation from consideration of the wider nature of the successor regime to VAT.

Another parent who privately educates because of defective state provision for SEN. I think on MN we're not supposed to exist tho - too difficult to fit within the leftie stereotypes .
Not done the maths yet - hoping I don't have to

most of schools costs are staff, so no VAT to reclaim.
Even if schools only lost 10% of pupils, many would struggle to continue on reduced numbers. Many parts of the country do not have multiple private schools pupils could move across to. I would be surprised if this policy raised any money and not sure where all the surplus places are.

That is state school places

"If my children come out of private education a small amount of it will be spent on private tuition from non-vat eligible tutor, but the majority will simply stay in our limited company to pay for our pensions and property investments. The Government will then miss out on corporation tax and dividend tax on £27k, plus fund our DCs education."

Yours is the sort of rent-seeking that makes me agree with Labour's policies. Yeuch.

If you move house to buy into catchment of a good state school, you will almost certainly pay a significant amount of stamp duty tax which should also be factored in.

DS will still be attending... Thank God

OP A little patronising I feel. If you re-read what I wrote you will see that I said CT is payable on profits. Please don't make assumptions about my life without knowing about my Big 4 tax career. I assume you do know what the Big 4 are?

We are voting labour and we won't pull our DCs out of private if labour win.

Sad to hear that so many have to go private for their children with SEN. You should at least have a choice of a decent education in the public sector.

Oh dear. Sincere apologies stick.

It looked very much like you were trying to tell me that my business pension contributions and business asset purchases weren't allowable expenses. Obviously, as you will know, that's just basic stuff. So I assumed that you knew sweet FA about business accounting. A very natural conclusion to come to given your post, I believe.

Clearly I was wrong and you had simply replied to my post without correctly reading it. Easy mistake. I'm sure we've all been there.

If you decide to make pension contributuions, you benefit. It is simply a timing issue as to whether you benefit today, by choosing to fund your child's education or benefit in the future through your pension pot. Therefore you are no better or worse off.

Your company does not get tax relief by purchasing an investment property as it is a capital asset. Any income it generates is subject to corporation tax, so the country will still benefit. If it fails to generate a profit, you have made a poor investment decision.

X post.

I know a number of families who just about manage to pay school fees and would struggle to find another 20 percent. I also know of a number of private schools that are just about managing to stay open.

I suspect the schools will try to absorb some of the cost by having smaller annual fee increases but at the end of the day they are unlikely to be able to do this to a significant extent.

It will be a worry for many families and like it or not there will be lots of people like the OP for whom private schooling is very much a luxury and who will have to prioritise their retirement and pensions (quite sensibly IMO), particularly if corporation tax is also increased and the plans for land tax are implemented.

Personally, we'll be ok but other things such as holidays and general spending will have to give, which impacts on the economy in other ways.

Fortunately school fees rent too bad in our area and DD gets a part scholarship so it we would still be able to afford it. It wouid make things harder, especially when we have a 1 year overlap with DS so will pay x2 then.
It wouldn't affect the very rich as they could absorb it but the vast majority of people with dc at Private school in our area aren't in that category so I imagine it would hit hard.
We also own our own business so we wouid probably get hit there too ( as do many of the parents with dc at DD's school)

It would be an extra £10k in fees for me - a large enough hit to make a difference if it was all passed on together with the other tax increases targeting us. My dc are towards the end of their school years, so if uni fees are abolished as well, then we might swallow it, but equally it is enough to make us reconsider state schools for particular years. We'd be saving £18k per child per year, and no, we wouldn't be spending much of that money on VATable purchases.

All this unnecessary upset, uprooting children from schools where they are settled, just to provide free school food for children whose parents can already afford to do so. Makes me sick.