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/

Ironically we're putting our tenant's rent up, which should hopefully cover some of the VAT. Needs must.

I'd be interested to see your stats. Which 5 boroughs have no schools with more than a 20% GCSE pass rate?

My own quick Google threw up the following:

The boroughs with the lowest GCSE attainment rates are Lewisham and Lambeth, with 66.6% and 66.1% of their students achieving grades 9-4 in English and Maths in 2021/22, respectively.

I actually did a Google of the worst performing London schools and none of the ones that I've looked at had a GCSE pass rate as low as 20%, and yet you say that there are at least 5 whole boroughs where there are no schools getting more than this. I'm really interested to learn more.

You say if the school has a low pass rate then private school is essential for some parents. By this I assume you mean rich parents. Why is it acceptable that poor kids go to low attainment schools but rich ones don’t? Are rich kids inherently more deserving or important?

Nobody is saying rich kids are inherently more deserving. I was that poor kid at a low attainment school and my parents couldn't afford private school but could still instill a sense of determination and aspiration in me. Unfortunately the parents of most of the other kids at the school just didn't care. We can all pretend that isn't the case but unfortunately there are an awful lot of parents who just don't care - and they obviously aren't the ones posting on this thread.

Yes, there are lots of parents who can't or won't support the education of their children. I don't really understand what that has to do with VAT on private schools though?

Because you asked of it was acceptable if poor kids went to a low attainment school and, whilst nobody Iin their right mind can think it is acceptable, the reality is if parents (rich or poor) aren't worried about their schooling then that is why they will stay at that school.

While we're all here... Any tips on avoiding road tax? Stamp duty? Asking for a friend.
(I might be joking)

Or they will do things to supplement / make up for the school.

Use public transport and rent a property...

I didn't ask that, it was someone else. But I don't follow your logic.

Yes, some children have parents that can't or won't support their education.

But the parents of private school kids who have to move to state school because their parents can no longer afford the school fees are not going to suddenly stop caring about their education. Their kids are still going to have the advantage of supportive parents wherever they end up. So what's the relevance, exactly?

Presumably you're aware that there are lots of parents of kids in schools that are not rated good or outstanding who do care about their kids' education? Who keep their kids at these schools either because the child is excelling anyway or because they have no choice?

It would take time for that to become a norm from employers, but freelancers/contractors who have a limited company could presumably do that immediately.

They'd have to pay income tax on the benefit-in-kind for the fees (including VAT). But since the company could offset the VAT, they would effectively only be paying income tax on the VAT amount rather than the VAT amount itself. Even at higher rate tax that's a significant saving. And if they're outside IR35, they could take dividends which are taxed separately from income tax: so the fees benefit-in-kind could fall within the 20% tax band which would mean they're paying £800 instead of £4k.

Is that right? I'm not an accountant, so could have made a mistake!

Unexpected distortions and changes to behaviour..

You can’t reclaim VAT on purchases by a business for personal use.

Professional services firms are not going to pay the school fees of their UK based employees to help them save VAT. The payment would be a taxable benefit meaning a charge of 40/45% on the total payment and the optics are dreadful.

School fees might be part of an international secondment/move package but that’s always been the case.

I dug into it a little more and it looks like the VAT can be offset if the expense was for the 'purpose' of the business not simply 'benefitting' the business.

I wonder whether it will be permitted when it allows an employee to take an overseas secondment? As you say, that's a common benefit.

In which case, it may also be claimable for boarding fees for a UK-based employee or contractor - particularly if the person has to commute into an office far from their DC's school.

Maybe a stretch for day fees. The longer hours at private school would benefit the business, but couldn't really be said to be for the purpose of the business.

Why would a business pay school fees for someone who chooses to live a long way from their place of work. It’s the parents decision not to move their home and children’s school if they relocate for work.

You’re reaching!

In the same way that a company might provide a package to enable a US-based employee to relocate to the UK, I see no reason (from a tax point of view) why they shouldn't be allowed to provide a package to enable an Edinburgh-based employee to relocate to London.

If their child is at school in Edinburgh, that could include boarding fees for them to stay there - just as the package for the US-based employee would include private school fees in the UK.

I don't know whether even the US-to-UK package VAT could be offset. I guess it hasn't been tried, since there's never been VAT on education to offset. I'm sure companies will look into it/ try it.

Any tax law which applies to a large company also applies to a contractor who has set up a limited company with themselves as the single employee.

It's made me realise how many don't understand money. They think that if you have £18000 a year to spend on school fees (because you saved up for the past 15 years) that an unexpected £4000 will be easy to find. That's not how money works. Especially not in a cost of living crisis.

Some employers fund childcare (some even have emergency daily nanny services on call so that if someone's nursery or nanny lets them down the employer can step in given loss of a day's work from the employee might cost the employer thousands of pounds). The Uk state of course for years has funded boarding school fees for military and diplomatic personnel (I see in July it is suggested military families might be spared the VAT by the way - https://www.telegraph.co.uk/money/tax/labour-spare-military-families-vat-raid-leaked-email/ ) https://www.isc.co.uk/media-enquiries/isc-blogs/what-does-labour-s-vat-policy-mean-for-military-families/

On the tax position where an employer (even someone's own limited company) pays school fees as a perk and the suggestion of how that may be treated above I am not sure as have not looked into it. I think some accountancy chats online have suggested "salary sacrifice" might help reduce the tax burden but whether employers other than the army etc would play ball on this given how woke left they are or have to pretend to be that remains to be seen.

Hi, pay the school fees from a limited company which is vat registered. Reclaim the vat paid on fees.

the fees will be a benefit in kind to you the director and will be subject to nation insurance but that’s not bad compared to vat

Benefits in kind are subject to income tax, not NI.

They’re subject to both aren’t they?

Are you certain you can reclaim the VAT? School fees are not an expense of the business.

Sorry - meant to say "not just NI". The employer pays NI on BIK, the employee pays income tax.

You can reclaim the input tax as it is being supplied to an employee as a benefit. However, output tax may be payable on the value of the benefit. I'm not a VAT expert, so anyone wanting to go down this route would need to consult a VAT expert. However, given that income tax is payable by the employee and the employer has to pay NI, this doesn't look to me like a viable way to avoid VAT even if no output tax is payable.