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VAT on private school fees

1000 replies

user1486984759 · 27/09/2023 20:42

So I’m going to get crucified for this, BUT, let me get this straight:

  • We pay 45% tax, thereby funding state schools
  • We do not get any benefits, and those that do get priority when it comes to state school admissions
  • We scrimp and save from what’s left after paying 45% tax to pay for our kids’ education
  • And now the state is going to add 20% to our school fees to fund state schools
  • So we pay the most to fund state schools, but when it comes to state school admissions, we are last in line

How is this fair?

It seems that in this country, the best places to be are (1) a non-dom billionaire, or (2) someone who doesn’t pay taxes, gets all the benefits, and gets priority in state school admissions. The hard working PAYE earners are screwed by parties from left, right and center.

OP posts:
Thread gallery
21
CurlewKate · 29/11/2023 09:54

@Araminta1003 "As a country we are pouring more and more into the NHS and not enough into Education for our own."

I may regret this- but who are "our own"??

Araminta1003 · 29/11/2023 09:54

”me and DH” - really? Are you trying to make a point with that?

MogdenSewage · 29/11/2023 09:56

If private school subject to VAT, should those after school club, academic/sport enrichment activities, tutoring classes at maintained sector that parents pay for themselves subject to VAT too?

explainthistomeplease · 29/11/2023 10:02

Araminta1003 · 29/11/2023 09:54

”me and DH” - really? Are you trying to make a point with that?

If you're making a strange point about grammar you'll have to try harder.

  1. This is seen as pretty rude on MN. It's why we have Pedant's Corner as an outlet
  2. It's about register. MN is a chat room format, not The Spectator
WhileMyDishwasherGentlyWeeps · 29/11/2023 10:08

explainthis, did any of those you mention go to grammars or sought-after comps?

explainthistomeplease · 29/11/2023 10:17

My family all went to local comprehensives. DC's narrowly escaped special measures just after they left. It would have been better tbh if it had failed completely. But that's another story.
Simon Armitage's school is I believe the local comp. He may however have been like my DH and be old enough to have passed the nationwide 11 Plus, and entered the local grammar just as it switched to comprehensive. They are the same age, and that's hat happened to DH. It didn't seem to thwart him though.
I'm afraid this is a silly debate though, which I've entered in response to Araminta. We could draw long lists of luminaries from all sectors..

WhileMyDishwasherGentlyWeeps · 29/11/2023 10:27

explainthistomeplease · 29/11/2023 10:17

My family all went to local comprehensives. DC's narrowly escaped special measures just after they left. It would have been better tbh if it had failed completely. But that's another story.
Simon Armitage's school is I believe the local comp. He may however have been like my DH and be old enough to have passed the nationwide 11 Plus, and entered the local grammar just as it switched to comprehensive. They are the same age, and that's hat happened to DH. It didn't seem to thwart him though.
I'm afraid this is a silly debate though, which I've entered in response to Araminta. We could draw long lists of luminaries from all sectors..

Thank you. I was asking because there are ardent state school advocates who went to grammars or high-price catchment comps but who don’t accept that their experiences are atypical. And it seems your husband went through a comp as part of a grammar cohort.

Anyway, you’re right in one way of course: plenty of people who are successful academically (and in working lives) went to comps. The only difficulty with that is that is all that’s available to most, so it tells us nothing about the general state of, or failures of, comps.

So far as it matters, which is nil, I went to a crappy comp. It was disorderly. I did very badly. I went back into education when I was older and what success I’ve had is from that. Comprehensive schooling was not a success for me.

There are millions of stories. The anecdotes aren’t helpful.

explainthistomeplease · 29/11/2023 10:31

He did. In 1974! But it mixed the grammar and secondary modern kids together so he wasn't streamed in any way. It's just the way it was.
I went to the same school a few years later. It was rubbish! But my parents were more likely to have flown to the moon than move house because of the school.

JuneSun · 29/11/2023 10:59

The discussion seemed to go off-topic. The chat is not about state education. It is about this potential VAT charge and the impacts on the family. and how we should handle this situation. I am not sure about the involvement of the parents who are not using the independent education.

The Independent Schools Council census.... found there are 544,316 pupils at 1,388 ISC member schools.
https://www.surreyi.gov.uk/dataset/2y3j8/number-of-schools-and-pupils-by-type-of-school
So this change influences more than 200k families, assuming each family has two children who attend independent schools.

Number of schools and pupils by type of school | Surrey-i

https://www.surreyi.gov.uk/dataset/2y3j8/number-of-schools-and-pupils-by-type-of-school

Araminta1003 · 29/11/2023 11:19

@JuneSun - I think you need to add in the impact of the VAT policy on those working in independent schools. Because adverse changes will impact them most, even more than the families paying the fees?

JuneSun · 29/11/2023 11:22

@Araminta1003 true, and the locals.

Tulipsroses · 29/11/2023 11:41

Top 10% of earners pay 60% of income tax. They are the ones that pay for the state sector plus have to put additionally high fees to educate their kids. To burden them with more tax is a complete insanity.

The government has to ask it self why the average price per child is 3 times higher in private school the state. If in ideal world the education in private and state was relatively equal this whole issue would not arise. Some European countries have excellent state education and it's very hard for parents to justify paying for private.

Mia85 · 29/11/2023 11:52

JuneSun · 29/11/2023 07:00

@GrandmasMeatloaf, the school emailed us about what they plan to do to raise/save money. However, I wonder what parents can do to make our concerns heard by the government. with 20% raise, a significant number of families can no longer fund studies in independent schools and return back to state school. That will increase government's spend for state schools (roughly £6k per student per year), rather than saving.
Independent schools may have to reduce staff to balance their finance sheet. Our school is the only sizable business in a small town, and many local businesses/residents work for the school. If the school business collapses, this will be disastrous for many families. Is this really what the government want to see? I hope they really thought these through.

@explainthistomeplease perhaps you don't have children in independent school, and you don't feel the pressure. For families with children at independent schools, a 20% increase, means £3000-£10k of increase in fee, and roughly £6000-£20k cost in terms of salary before tax. with more children, you need to multiple this number. I think this is reasonable for parents to raise their concerns.

Edited

I wonder what parents can do to make our concerns heard by the government.

This isn't (currently) a government proposal, it's a Labour party proposal. Presumably if you complain to the current government they'll tell you to vote for them again rather than Labour!

explainthistomeplease · 29/11/2023 11:59

I'm glad you've pointed out how it works @Mia85 !

Araminta1003 · 29/11/2023 13:05

@JuneSun write to the Shadow Education Secretary and copy the leader of the Labour Party Email: [email protected]

However, for parents who are really worried about the extra costs, I would move my DC to the state sector sooner rather than later provided they are not in Year 10 or 11 or have already started Sixth Form. I think in the short term many families will find ways to absorb the cost and change sectors at the usual changing points 4, 11, 16 etc. And those with transferable skills will seek employment in countries with a better standard of living and lower tax burden for their type of high PAYE family. The very rich won’t care either way. People with lots of spare cash are making more on interest rates right now then they would lose in VAT on school fees.

EasternStandard · 29/11/2023 13:09

JuneSun · 29/11/2023 10:59

The discussion seemed to go off-topic. The chat is not about state education. It is about this potential VAT charge and the impacts on the family. and how we should handle this situation. I am not sure about the involvement of the parents who are not using the independent education.

The Independent Schools Council census.... found there are 544,316 pupils at 1,388 ISC member schools.
https://www.surreyi.gov.uk/dataset/2y3j8/number-of-schools-and-pupils-by-type-of-school
So this change influences more than 200k families, assuming each family has two children who attend independent schools.

It’s a terrible policy, using dc’ education as a political gimmick which will damage a sector. An extra 20% on any sector would damage it unfortunately this is aimed at dc

Good luck

Ophel5 · 29/11/2023 13:14

In some European countries you can actually have your income tax reduce if your child attends private system… because it takes off pressure on the state sector. How else private schools there are cheaper

EasternStandard · 29/11/2023 13:16

Ophel5 · 29/11/2023 13:14

In some European countries you can actually have your income tax reduce if your child attends private system… because it takes off pressure on the state sector. How else private schools there are cheaper

yes we had that system. An actual tax rebate

Araminta1003 · 29/11/2023 14:24

@EasternStandard - is that Finland?

Lots of my European friends seem to be leaving the U.K. For many it is also uni costs here. Many European countries are almost free or free for residents.

curioscurio · 30/11/2023 11:06

Nellodee · 28/09/2023 19:08

Let’s have some data:

Nellodee, did you read the paper you are citing? 50% of top 1% income sending children to private school doesn't mean that 50% of children in private schools are from top 1% income families.

In fact, if you look in Table 2 of the paper you cite, (“Income, housing wealth, and private school access in Britain” by Henseke et al which is open access, so it is easy to check) you can see that average weekly income of families sending their children to private eduction in 2018 was £429 per adult after tax (assuming 2 adults and 2 children in the household -- I am a bit overestimating, as they report household income divided by the square root of number of people in the family and I assumed 2 adults and 2 children) which amounts to £22308 a year and a house value of 366K in 2018 prices. I honestly don't think it is top 1%. Neither, incidentally, does HMRC: they put this income in top 51% (see https://www.gov.uk/government/statistics/percentile-points-from-1-to-99-for-total-income-before-and-after-tax#full-publication-update-history).

Thus, the picture of an average parent with children in private school is much closer to the picture painted by your opponents: people on average salaries with average houses rather than super-rich oligarchs (note that the mean is always higher than the median, so in reality more than 50% of parents with children in private schools have less wealth less than that). It is worth noting that another paper by this author (Anders, J., F. Green, M. Henderson, and G. Henseke. 2020. “Determinants of Private School Participation: All About the Money?” British Educational Research Journal. ) concludes that the main determinant of sending children to private school is value attached to the education by parents, not the wealth. So VAT will be a tax on aspiration, not on wealth.

Incidentally, the paper that you cited also debunks major assumption in IFS report (https://ifs.org.uk/publications/tax-private-school-fees-and-state-school-spending#:~:text=Key%20findings,%2Dday%20and%20capital%20spending).). Clearly para 2 doesn't make sense: in the cited period the salaries of people were growing by 2% and the house value by 8% a year (same Table 2 in the cited paper)-- this is why families could accommodate fee increases of 4% a year. Sudden increase of fee by 20% is totally different and the assumption that percent of the children in private education will still stay in 6-7% range is preposterous (especially if you take into account that families in 2018 were already spending 67% of their income on education on average according to the paper you cited). I don't think families can afford to pay 80%+ of their income on education, so we are looking at 4-5% of children in private education after VAT is imposed.

With this kind of numbers simple calculations show that the total income from imposing VAT (assuming average spend per school child of £8K by state, average private fee of £15200 and effective VAT of 15% as in IFS report) is negative -- it will cost the tax payer due to people moving from private to state. Not the effect intended.

Note that IFS assumption that families moving children to state will still pay VAT on other goods they will purchase instead (para 4) is unrealistic at best: people would, most likely, invest in private tutors/extracurricular (no VAT) and put money in savings optimising for taxes (still no VAT).

Percentile points from 1 to 99 for total income before and after tax

This table shows the percentile points of the income distribution, estimated from the Survey of Personal Incomes each year.

https://www.gov.uk/government/statistics/percentile-points-from-1-to-99-for-total-income-before-and-after-tax#full-publication-update-history

Attheendofthedaysheturnedroundtomeandsaid · 18/12/2023 16:05

There is nothing 'commercial' about private schools. They are not creating surplus funds for shareholders or a few fat cats, partners or board members. All funds are ploughed straight back into the school to improve facilities, infrastructure, teaching provision or the general well being of the school OR for the significant sums allocated to fund bursary or scholarship places or supporting local state schools. There is a huge difference. They should absolutely maintain charitable status and anyone thinking differently has limited first hand experience or understanding of the private school system. Don't be fooled into thinking that businesses fund local communities simply because it is the right thing to do. All that expenditure will find itself noted on the annual tax return submission as charitable donations on which tax relief will be claimed, and the tax liability reduced accordingly.

Whatevers · 11/01/2024 18:26

Is anyone aware of advice about paying fees in advance and how much VAT would be payable? I saw something which said that VAT would not be payable if it was invoiced preelection and another that said fees paid were VAT free until the policy was announced and any service prepaid before the election but received after that was VAT liable.

Mia85 · 11/01/2024 18:44

Whatevers · 11/01/2024 18:26

Is anyone aware of advice about paying fees in advance and how much VAT would be payable? I saw something which said that VAT would not be payable if it was invoiced preelection and another that said fees paid were VAT free until the policy was announced and any service prepaid before the election but received after that was VAT liable.

I don't think anyone can be sure as it would depend on how the Labour government (assuming that's what happened) implemented it.

This is quite a useful explanation: https://www.farrer.co.uk/news-and-insights/vat-on-school-fees-qa/

OlizraWiteomQua · 11/01/2024 22:22

Whatevers · 11/01/2024 18:26

Is anyone aware of advice about paying fees in advance and how much VAT would be payable? I saw something which said that VAT would not be payable if it was invoiced preelection and another that said fees paid were VAT free until the policy was announced and any service prepaid before the election but received after that was VAT liable.

I don't know exactly, but I know that a few years ago I was a regular customer of a small business whose operations were initially under the VAT threshold. When they knew they would be projecting sales over the VAT threshold in the next tax year they had a limited special-offer to get next year's orders in before a particular deadline and they would be able to charge without VAT for any orders recieved up till the VAT threshold.

However in the context of school fees it would be so obvious a trick that I am sure the new legislation will close such a loophole before it could possibly be used.

goldenpepper · 12/01/2024 13:38

Labour's policy on this whole thing is so muddled that it seems clear that neither they, nor private schools, truly understand a) how much VAT would be passed onto parents - because there are many ways that private schools could claim many 'aspects' of their offering are exempt from VAT, and b) how the payment of fees in advance might be a swerve for parents hoping to avoid paying VAT.

With the latter, there are mutterings about anti-forestalling legislation, but the reality of this would be almost impossible to orchestrate. However, there is also a tricky point about when VAT is actually due on a 'sale'. So if parents have the option to ask for advance fee payment back later (for whatever reason) - as they currently do in many fees in advance schemes where the school is acting more like a bank - then my understanding is this is legally tricky to say the VAT still shouldn't be charged later, because you are not truly 'paying' for those fees until your child is actually being educated in the particular term those advance payments were set aside for.

I'm not entirely sure - but then, no-one else seems to be either! 😂

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