Private School Fees plus VAT

[ApplesOrangesBananas]

I am looking at schools for DC to start next year. I have read some articles that said parents were getting ahead of this rise by pre paying for numerous years in advance. Obviously we can’t do this yet because DC hasn’t started yet.

I’m curious has anybody who has children at private school been told what to expect yet? Will fees go up 20% or will they “half it” with parents and only go up 10% etc?

This increase is something we need to factor into account when exploring schools.

Also this is not a thread for you to bash private schools and write things such as “choose state school instead like the rest of us”... if those are your opinions then please find a different thread instead. I purely want to know if any parents have received communication regarding a fee increase yet? Thank you

If you don't agree, fair enough, but to gloat is spiteful.

There’s been quite a bit of gloating - as you say, it’s spiteful, but if the poster gets pleasure out of it then it says more about them.

lol. Spiteful.

no sympathy

I hope that you will not expect sympathy if some other govt policy hurts you then.

Yes, it is spiteful to be loving other people getting hit by a tax.

I don’t think it’s spiteful for anyone to be glad that a tax loophole is being closed.

Presumably a lot of people would be glad to see offshore tax haven loopholes being clamped down on. Would that be spiteful? Or is there a £ point at which it becomes reasonable to close a tax loophole?

It’s not a loophole. Education is exempt. And this tax raid would be illegal had we not brexited. It is in no way a loophole, it’s a new tax.

As @Tgjjl has said, it's not a loophole. It's a new tax.

It is sheer nastiness to be glad in this situation.

Interestingly, an article in the Guardian said that to abolish the two child benefits policy would cost £1.7 billion and indicated that this amount was a drop in the ocean. Bizarrely, this is the same amount as is claimed will be raised by VAT on fees and this £1.7 billion is going to save the education system.

Of course they won't give generous bursaries any more! What with and why should they!

Top private schools don't really need their results boosted by kids who can't afford the fees any more, prep schools are a million times better than they were, so the normal prep school intake is enough to guarantee top results.

There might be a separate scheme for a couple of really disadvantaged kids to go, reliant on voluntary contributions from wealthy parents (these exist now, separate from regular bursaries which will dwindle to almost nothing)

It’s not the loophole being closed, it’s the fact that children will have to be pulled out of their school before finishing their education. And the knock on effects of this.

Again, I don’t want it to turn into a political debate as there are many other threads for that!

Anyway, to conclude I think the general consensus is that every school will be putting its fees up, most the full 20%.

It’s a grey area. It’s closing a loophole by bringing it under existing tax laws. Education is currently exempt from VAT if provided by an individual, but not if it’s provided by business.

Technically private schools should be paying VAT, but they are run as “not for profit” which makes them exempt.

Starbucks barely pays any tax as it doesn’t make much pre tax profit from its £149m gross profit after “administrative costs” which we all know is a con, and taking advantage of various tax loopholes.

Just because things are legal doesn’t make them right or fair.

Anyway, I see the OP accepts they will need to factor in a 20% increase in the foreseeable future for budgeting purposes.

Being run as not for profit doesn’t make a school exempt from vat they are exempt from vat becuase education is exempt from vat if provided by a school. A private school that is run for a profit is also currently exempt from vat on its fees. I’ve copied link to vat guidance below.

it’s completely different to your Starbucks example, Starbucks lower its uk profits by including management charges or recharge of other costs so the profits are moved from uk to another country and are taxed in that other country. Starbucks could choose not to include these recharges if it wanted to and pay higher tax in uk. A private school can’t choose to become vat registered and charge vat on its fees as things currently stand, its supplies are exempt, so it’s not a loop hole it’s the way the rules currently are written there is no other choice.

https://www.gov.uk/guidance/vat-on-education-and-vocational-training-notice-70130

Charities make profits!
The point is is that they have to use those profits towards meeting their charitable aims not to profit shareholders or owners.

“Anyway, to conclude I think the general consensus is that every school will be putting its fees up, most the full 20%.“

I think most will have no choice. Going forward they will need to manage further rises more carefully because the usual 5% will now be 6% for parents. They will therefore be pushed into thinking in a more business minded way and I think there will be lots of parent questionnaires and add ons for extra curricular and packed lunch as an option to choose.
We do not pay for school meals at all in state primary in London but some of the local preps are charging almost £300 a term plus VAT on top would be £360 a term which is almost an additional £1000. I suspect parents in private schools will start cutting small things like that, transport, music lessons, any non essential add ons. Maybe there will be pressure to make the uniform cheaper too. Less kids signing up to expensive school trips etc - if the school trips become VATable at 20 per cent it will be ridiculous because non of us pay 20 per cent tax on a foreign package holiday (travel agents have a specific profit margin based scheme).

Can private schools give up their charitable status if they want to? It is more like 70% of ISC schools have charitable status?
If it is legally too complex to remove it, can they choose to ask for it to be removed but who would the assets belong to?

www.bbc.co.uk/sounds/play/m0021377?partner=uk.co.bbc&origin=share-mobile
Really interesting. All sides can take arguments from this.
But the striking thing is the business language, and the fact it's been around for quite a long time

Being run as not for profit doesn’t make a school exempt from vat they are exempt from vat becuase education is exempt from vat if provided by a school. A private school that is run for a profit is also currently exempt from vat on its fees.

@Morph22010 surely you can see that it’s all slightly dodgy ground, and is just being brought more into line? If a school is exempt from VAT even if it’s run for profit, but a company that employs tutors (teachers) to offer educational services is not exempt, then are we just saying that it’s legitimate that no school is a business, no matter what their aim with profits?

@Derbee

"but a company that employs tutors (teachers) to offer educational services is not exempt, "

A company providing educational services would be exempt from paying VAT as education is currently exempt from VAT.

@Araminta1003 nobody we know
is cutting back, they are all looking at ways they can increase their income. Most are purchasing investment properties to pay the fees, presumably not what Labour were hoping for.

I think most will have no choice.

Leaving aside the technical point that all private schools will be able to reclaim some input VAT on a go-forward basis, so they should be able to reduce pre-VAT fees by a few percent without affecting what they provide, most schools do have a choice:

They can reduce the services they provide.

Discussions are being had right now at two schools I'm involved with. One group of parents grumble but would prefer to pay the VAT and continue to receive what they signed up for. Another group would prefer to reduce what the school provides to maintain affordability for the more financially precarious fee-paying families. Items which have been mooted include:

• Reducing bursary expenditure
• Reducing "discretionary" capital expenditure, e.g., new facilities or equipment where the school could "make do" with older ones
• Charging more for and increasing the availability of facilities to those outside the school, thereby reducing availability and flexibility to the school
• Reducing the frequency and distance of school trips
• Reducing the budgets for school productions, e.g., costumes
• Reducing the budgets for extracurricular activities, e.g., transportation to sporting fixtures or music, chess or maths competitions
• Reducing the number of teaching assistants in junior school
• Increasing the number of students per class in senior school by 10%

These discussions have been taking place in parents' WhatsApp groups. The schools have decline to respond beyond that they're monitoring the situation and will provide information "in due course". If the governors take the route of maintaining provision, they will have no choice but to increase post-VAT fees by something like 15% vs what otherwise would have been, thereby pricing out some valued members (and potential future members) of the school community. If the governors take the route of maintaining affordability by reducing provision, they will very likely end up losing some other valued members (and potential future members) of the school community to more "full-service" schools. I expect that most schools will attempt to find a compromise. Whether those compromises keep most families onside or whether they manage to drive away both the least and most financially secure families remains to be seen.

I am expecting our primary to reduce TA numbers
They are already seeing reduced demand in reception classes due to what was at that point the threat of VAT
Families with older children already at school have chosen state school for their children about to enter reception

I think you’re mistaken. A tutor providing educational services would be exempt from VAT
if they were an individual.

A company employing tutors would not be exempt from VAT.

The government website explains the exceptions. It’s rather complicated but it’s not a blanket “all education is VAT exempt”.

But tax loopholes for relatively simple landlord setups with their rental properties are already being closed. It’s becoming much less profitable to invest in property than it has been in the past. Also a good thing.

Yes we have seen this in state education too over last 10 years when they were hit with budget changes. Examples have been loss of Ta's, Ta's doing teachers work, loss of deputy head as can't afford to have one so head took on more, reusing notebooks and files from one school year to the next reusing folders, cutting back on extra curricular, not having as many iPads as a class needs. The private schools will probably be looking to state sector to see how you can cut back and just about deliver what is needed (or not in the case of SEN)

@Boltonb they’ve all purchased student accommodation in limited companies to offset any increases. Student accommodation is always going to be required and yields are higher.

We intend to do the same, for the cost of fees we can buy a few student houses. Pay the fees using the rent and have assets that are growing in value.

That’s not correct private tuition is vat able in certain circumstances. If a tutor is providing private tuition themselves that is exempt but if they employ other tutors who provide tuition on their behalf it is vatable.

so a company set up to provide private tutors say for maths and English and those tutors were the companies employee the supply would be vat able

I can’t see how this helps someone to pay their fees. If they have the spare money lying about to buy investment property then they can afford the extra fees anyway. Not saying it’s a good or bad idea just can’t see how it helps someone to be able to pay fees. Are you looking at generating extra income from the property through the limited company, which then has to be extracted from the limited company or just looking at capital growth in property value?