Page 3 | School fees VAT: pay upfront?

tanyamcquoid · 2023-10-09T14:22:48+00:00

One of the ways to mitigate some of the 20% VAT on fees is to pay the fees upfront. (Please see legal opinions online - it’s true!). We have 2 DC at private school and a back of envelope calculation is that we need to find at least 300k upfront. If we remortgage, the repayment costs over 25 years at 4.5% will be 500k - so we are paying an extra £200k on top to avoid the VAT. Does this make sense? Can anyone do the compound interest sums of what the overall cost of VAT would be? We have five years to go on one child at 25k per year, and 7 for the other at 19k a year. I realise I’m not taking into account the annual rise but a small fraction is offset by the paying upfront scheme. The risk is: if we pay up front, the only way to get the money back is to change schools so if the VAT rise was not brought in, we could end up paying out crazy mortgage costs for nothing.

prh47bridge · 13/10/2023 00:21

AnotherNewt · 12/10/2023 22:28

@prh47bridge
Schools that are businesses are already VAT registered. Schools that are charities may be depending on turnover in the "business" side of the establishment (eg hire of facilities).

Will there really be that much change to VAT arrangements to those already registered, allowing a fee cut enough to offset a substantial part of 20%?

My understanding is that independent schools cannot currently recover all of the VAT they pay. However, I'm not an expert so I would defer to anyone who knows better. Having said that, the figures I've seen suggest that, at most, recovering VAT on purchases would allow a typical school to restrict the rise in fees to 17%. So no, I don't think changes to VAT arrangements will offset a substantial part of the 20%.

RoyKentFanclub · 13/10/2023 06:37

SisterMichaelsHabit · 12/10/2023 10:15

This isn't long term sustainable though, is it? The quality of facilities etc goes down when these projects aren't done for decades so eventually they will have to start charging proper fees unless you're suggesting they will simply hold out until a less educationally-stupid government gets in.

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In all likelihood they will try to hold off to minimise the impact for those currently in the school. Those who come in at the bottom will know what they are getting into and whether they can afford it. The reality is that many many schools function without a new floodlit netball arena or a new drama block or a new social hub gif sixth formers etc and so it certainly is possible to shelve projects involving significant investment.

The harsh reality is that they are also likely to have to stop bursary funding (which is entirely paid for by other parents through their fees)

By offsetting the vat they pay and stopping planned projects and stopping bursaries they can minimise the impact.

AnotherNewt · 13/10/2023 08:29

The harsh reality is that they are also likely to have to stop bursary funding (which is entirely paid for by other parents through their fees)

That can and does happen, but is not a widespread or typical arrangement. Most schools have a separately managed "pot" for bursaries and other awards (some stretching back to endowments that are 500 years old!) and which can be charitable even if the school itself is a business.

It's fairly common for a school to transfer any larger-than-planned operating surplus (not earmarked for other use) into the bursary pot. It's not usual to pay bursaries out of fee income (not least as it's not the most efficient arrangement). And of course schools are frequently fundraising (current families and alumni) for the bursary funds.

So I think most will be able to continue with support to a similar value - which may of course mean fewer recipients or lower levels of support per recipient, as the costs they have to cover will be higher.

JustAMinutePleass · 13/10/2023 08:40

AnotherNewt · 13/10/2023 08:29

The harsh reality is that they are also likely to have to stop bursary funding (which is entirely paid for by other parents through their fees)

That can and does happen, but is not a widespread or typical arrangement. Most schools have a separately managed "pot" for bursaries and other awards (some stretching back to endowments that are 500 years old!) and which can be charitable even if the school itself is a business.

It's fairly common for a school to transfer any larger-than-planned operating surplus (not earmarked for other use) into the bursary pot. It's not usual to pay bursaries out of fee income (not least as it's not the most efficient arrangement). And of course schools are frequently fundraising (current families and alumni) for the bursary funds.

So I think most will be able to continue with support to a similar value - which may of course mean fewer recipients or lower levels of support per recipient, as the costs they have to cover will be higher.

Burseries to the poor are a condition of charitable status. Private Schools have to have them to demonstrate they are charities.

When private schools are no longer charities these burseries will definitely not be offering support in the same ways they were before. The days where clever State School pupils get 110% bursaries to attend independants will be finished. They will be earmarked for children whose families have paid fees in the past.

AnotherNewt · 13/10/2023 08:55

JustAMinutePleass · 13/10/2023 08:40

Burseries to the poor are a condition of charitable status. Private Schools have to have them to demonstrate they are charities.

When private schools are no longer charities these burseries will definitely not be offering support in the same ways they were before. The days where clever State School pupils get 110% bursaries to attend independants will be finished. They will be earmarked for children whose families have paid fees in the past.

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That's not quite true.

The tribunal deemed that the provision of bursaries was neither necessary nor sufficient in demonstrating how schools fulfilled their charitable aims. But they are typically an important part of the picture.

Also at present, there is no proposal to remove charitable status (Labour have rowed back from that one). But even if that happened, they may well continue, especially as the funds/endowments are held separately.

And of course schools that are legally businesses also offer bursaries and other awards.

Busydadof2 · 18/02/2024 08:12

if you want to bring attention to public concern about labours plans, consider signing this petition:

https://www.change.org/p/stop-labour-from-adding-20-vat-to-private-school-fees-and-forcing-kids-to-change-schools

Sign the Petition

Stop Labour from adding 20% VAT to private school fees and forcing kids to change schools.

https://www.change.org/p/stop-labour-from-adding-20-vat-to-private-school-fees-and-forcing-kids-to-change-schools

Flopsythebunny · 18/02/2024 20:55

Busydadof2 · 18/02/2024 08:12

if you want to bring attention to public concern about labours plans, consider signing this petition:

https://www.change.org/p/stop-labour-from-adding-20-vat-to-private-school-fees-and-forcing-kids-to-change-schools

I'll be more concerned if they don't do it