Ways to avoid private school fee VAT

[tiantian1005]

Hi, not looking for a political debate but has this been discussed on how this can be avoided or recovered as in i am sure there is a workaround. Can we pay the school fee via a limited company then claim back VAT or at least claim as expense or can we do this via a trust fund/

Owning your own home rather than renting is a luxury not everyone can afford.

You're buying that luxury service when you take out a mortgage: you pay 5% of the cost of the capital each year in return for getting the use of that capital to buy the house.

There's no stamp duty, or any purchase tax to pay on that luxury for the first £250,000 (£425,000) for a first time buyer. That's much more than the total price of a private education.

It's the same.

There's no logic or sense to putting VAT on education, it's just politics.

Oh, and you don't need to have a free alternative in order for something to be a luxury.

There's no free alternative to chocolate biscuits (which VAT is charged on). Plain biscuits are the non-luxury alternative (no VAT) but they're not free.

Saying that private education is a luxury and so that's why VAT is being added is nothing but justification after the event for something Labour want to do for ideological reasons.

No other country in the EU charges VAT on school fees. In fact, until Brexit it was illegal for the government to add it. That's how much it doesn't make sense.

This. School fees are a long term commitment. 5 years for secondary up to GCSE or 7 to include A level. 14 if you do 4-18.

Surely any parent doing this has a buffer, just as you would for your mortgage if you lose your job or couldn’t work?
If a child is in prep then they can leave at anytime. If in years 7 or 8 there is time to find them a school before year 10. If in year 10 or 11 then you just have to find the extra for a few years and go state for A level.
If having VAT added to the fees means you must instantly remove your DCs then you have to question why you were putting yourself, and your DCs, under such insane financial pressure.

Whether you own or rent you still pay - there is no free choice. State school is free, private school is not - you have a choice.

If you can’t afford a chocolate biscuit then the free option is go without the biscuit, not to have a plain biscuit and then moan about it.

What a ridiculous thought process. Education is not ‘free’, it is funded through tax, so if someone opts out they are effectively giving money back to the state to spend as desired. That isn’t something that should be penalised but rather incentivised.

private healthcare is another area where there is a state option and a state entitlement, it actually it is a good thing if some go private for their hip replacements as it means shorter queues for those who can’t afford to.

But you do need to eat something, which is not free.

There's no logic to what you're saying.

@tiantiantian1005 genuine question- why do you think you should avoid it? Just because historically you haven't had to pay it?

I suspect that there won't be a massive sudden exodus (although a small number will leave, and if that causes some smaller/more precarious schools to shut there might be localised floods into the state sector where that happens).

But rather that parents will choose not to start private at YR, Y7, Y12. Since as you say, they'll calculate whether they can afford it for the duration - and for some people the extra 20% will mean 'No, not sensible' where otherwise it would have been 'Yes, should be OK'.

So the number displaced from private to state by this policy will ramp up over the next 7 years. But a tax is a long-term thing. If it loses money from 2030 onwards, then that's a failure - even if they managed to extract some money whilst people were effectively locked in.

If the numbers in YR, Y7 and Y12 are 10% down in the next year or so (depending on when it comes in) compared to last year, then it will be reasonable to conclude that this policy will lose money within a few years. I'm deliberately not comparing to this year, since anecdotally this year is already down as people expect the change to come in.

I did say in my original response that it was paid out of general taxation. It is free at the point of use and in the context of comparing housing with education then yes State is ‘free’ and private ‘costs money’.

I find your comment unnecessary and rude. Just because you have a different opinion does not make my views ridiculous.

You are not giving money back by not using a state school anymore than someone who doesn’t use the NHS is reducing a waiting list.
Private healthcare is queue jumping, as it is usually the same consultants doing both NHS and private work. The private work taking them away from the NHS list.

Private education is a similar privilege that confers no benefit to state school pupils.

That is until Labour get in and PS parents will have to contribute via VAT. I will be one of those parents in a few years and when it is my turn to pay it I will do so and I will count myself lucky that I have that choice.

Your reasoning doesn’t make sense : if I don’t exercise my right to a state service I should pay extra tax. All that does is drive demand (but no extra funding) for the state service, making it less accessible for everyone.

and yes, going private for healthcare does shorten queues. The fallacy in your reasoning is thinking that people will work the same amount regardless of the compensation level. If private practice wasn’t an option many physicians wouldn’t work more for the nhs, or worse yet would find different jobs- trust me, I work with several former doctors. Economic incentives change behaviour , which is why this change in vat will be a net negative for the educational sector.

The biggest threat to most PS parents isn’t VAT but low pupil numbers in some schools. I imagine a lot of parents are saving up to enter schools at a later stage (maybe year 9 or 10 instead of year 7) or forgoing all of prep instead of joining in year 3.

Parents will work around this, maybe picking bigger more established schools rather than risk a smaller one. Smaller ones are already closing down or being bought out by venture capitalists running educational trusts comprised of several or more schools. Definitely have a back up plan if your school has low numbers or struggling parents.

As for making money! 🙄 the report Labour are going with claims those who send their children to state will fritter their money away on holidays and house extensions, so they will still get VAT that way. Personally I think some families will tighten their belts a bit more and significantly reduce their hours, and thus pay less income tax!

Comparing education with biscuits isn’t really going to be logical. Most things in life don’t have a ‘paid from general taxation - free at point of use’ equivalent that everyone, regardless of income can access. We are lucky in this country to have the NHS and education available for all. People complaining other countries don’t have VAT on school fees forget that they don’t have an NHS to fund. Just because they don’t charge VAT in the EU now doesn’t mean they won’t. Someone always has to be first!

Some things taxed as luxuries are unnecessary (eg watches, phones), others may have a cheaper alternative but not free (eg some foods, adult clothes).

Some things which aren't taxed as luxuries are unnecessary (eg flights), others may have a cheaper alternative but not free (other foods, designer children's clothes, mortgages), others have a state-funded alternative (healthcare).

There isn't a consistent argument that whether there's a free alternative determines whether something is a luxury which should be taxed. No consistent explanation that mortgages different to private education, or private healthcare different/similar to private education or children's designer clothes different to adult supermarket clothes. It's a political choice.

All these justifications about why private education should have VAT are just that - made up to justify something people have decided on for a different reason.

You say that private school parents are not giving money back by not using a state school. But you can't deny it will cost the state more if a family decides to put their kids into state school than if they don't.

From purely utilitarian point of view, the state will have less money to spend (whether that's on the kids who are already in state school or on training extra nurses) if they pay to educate all UK children instead of only 93% of them.

this report outlines why 10% is the tipping point where the extra cost completely offsets the extra VAT. Any more, and this policy leaves the government with less money.

What don’t you understand?

When you buy a premium product you pay VAT. With school fees the government gets nothing. Labour is not stopping you from choosing a private education but it is not going to give you a tax break anymore. It really is that simple.

I worked in the NHS for a very long time and know first hand the impact private work has on NHS lists.

Honestly, you can find examples and comparisons all night long but the fact is private education is a choice, and is a luxury item available to only 6% of UK school children. You can carry on buying this service but Labour plan on removing the tax break and charging VAT.

It doesn’t matter what you or I say, that is the plan and as others have said, it is not the most important issue in the World. Even most PS parents accept that.

Getting back to OP before I retire for night… OP pay the VAT or go overseas if you don’t like it.

But if rich people’s kids went to state schools, the outrage over underfunding would be such that even the Tories would have to fund them properly! We would quickly move toward an education system to rival the Scandinavians!

With school fees the government gets nothing

Apart from the income tax on the money needed to pay fees, which they don't get from equally wealthy state school parents who work fewer hours/pay into pensions.

And a UK child's education paid for them, so that they get to save that money.

And the downstream employment taxes, given that most private school costs go into salaries.

But apart from that, of course the government gets nothing.

(But apart from the sanitation, the medicine, education, wine, public order… and public health, what have the Romans ever done for us?)

True, but everyone pays VAT on services and luxuries out of their taxed incomes. Up until very recently, we were still forced to pay VAT on tampons and pads 😮 Private education, when a state system is available, is a luxury and should incur VAT.

Quite a few rich people's DC already attend state schools. Witness how many "we could afford private but chose to use our outstanding state option" statements there are in threads like this.

What this demonstrates is that it is possible to deliver a good education for the current level of funding when you have the "right" student population. Unfortunately, the level of funding which delivers good outcomes when the students are overwhelmingly from well resourced, invested families (in leafy green suburbs and selective grammars), and/or when schools are allowed to screen out difficult children (Michaela), that level of funding is often not sufficient when the students do not have as much external support or have additional needs. Rich people will find ways to send their DC to the former type of schools (moving to more expensive catchments and/or tutoring for selective grammars) and supplement their educations outside of school. The state educational system is unequal enough so that it will still be more efficient for any individual rich person to focus their resources and efforts on their children rather than on improving the entire system.

This. Rich people either buy houses in the best catchments or pay for private. If neither is an option they bring in private tutors and manage exams themselves. There is no going to a dodgy state school for them.

Quite a few rich people's DC already attend state schools. Witness how many "we could afford private but chose to use our outstanding state option" statements there are in threads like this.

This is true. We were one such family. Not sure that I'd describe us as rich but we are certainly very comfortable and we only had one dc so private wouldn't have been a stretch.

We invested heavily in supporting the state schools that dd attended in multiple different ways. Sharing professional expertise and contacts. Fundraising. Volunteering. And still serving as a governor many years since dd left. I know other parents who probably could have gone private that have done similar. Schools undoubtedly benefit from having educated, engaged parents.

No they would just tutor instead- creating less places in state schools. I am now going to prep my child for grammar schools which if there was no VAT I would have stayed private. I will campaign for reduced or get rid of bursary places and sharing our facilities with state schools unless the private school is paid for their use. This is a lose lose policy- catchment areas will become unaffordable near good schools- just ask how much Keir Starmer house is worth!!

also, this is an insult to current state parents and teachers who you imply don’t care enough about their children as private school parents!

Would you say that you sent your DD to a bad state school and that your efforts made it better, or would you say that you sent your DD to a good state school and that your efforts made it better? If the latter, would you agree that your efforts probably increased the inequality within the state school system?

Her state primary was already excellent...not least thanks to the contributions of parents like us over many years. Highly educated, middle class catchment and all of the advantages that that brings. I'm under no illusions that this is in any way "fair", and yes, in some ways we probably were helping to perpetuate inequality within the sector. That said, the school is part of a local schools partnership (not a MAT!) in which the stronger schools actively support the weaker ones. As a governor at dd's old school, I have been heavily involved in various initiatives to support the weakest schools in our area with improving aspects of their governance etc.

DD's state secondary was decidedly average tbh, and to be fair, it's still pretty average overall, but I do feel that we and other parents like us have been able to help in various ways that have certainly benefitted kids from less privileged backgrounds that are at the school. E.g. by providing work experience opportunities and interview practice etc. Delivering talks. Fundraising etc.