PS VAT - international reaction

[AlbionLass]

France and Germany attack UK plan to levy VAT on international school fees
Proposal to impose value added tax in the Budget risks damaging diplomatic ties, ambassadors say.

France and Germany have hit out at Sir Keir Starmer’s plan to levy value added tax on private school fees, saying the policy risks forcing hundreds of children out of international schools and damaging diplomatic relations with the UK.

I wonder how this will square with wanting to be closer to the EU?

Yes, but it's a reminder of quite how unfair it is that those of us who do everything by the rules are gouged again and again.

HMRC don't seem to bother going after tradesmen who take cash-in-hand and keep payments off the books: not paying VAT, no corporation tax, and not paying tax or NI on most of their salary. Probably getting a benefits top up as well, since they keep their declared salary so low.

It used to be that tradesmen would surrepticiously mention paying partly in cash (which we have never taken up, btw). Now they just list it as an option without seeming to even realise it's illegal.

I can't imaging any private schools doing that. Not only because their reputation is so important, but DD's at least always seems genuinely pro-social. I doubt they'll even reduce their (substantial) charitable work.

I can't imaging any private schools doing that. Not only because their reputation is so important, but DD's at least always seems genuinely pro-social.

It’s also Very Flipping Trackable. HMRC probably isn’t going to know if Plumber Jo squeezed in a minor radiator fix in between her two big bathroom jobs. But it’s a bit harder to hide a pupil or ten.

Yes, that's true.

It's pretty galling that we're gouged for ridiculous tax when the informal economy - ie avoiding tax - is estimated to be worth 10% of the formal (taxed) economy - $412 billion per year.

Income tax and NI on that would fill the 'black hole' twice over, even without corporation tax.

And then there's the benefit fraud that sits on top - where people claim benefits because their income is hidden.

Welfare fraud is estimated at £8billion each year.

As per all my comments on this thread, I am a private school parent who is vaguely pro this policy. I have no interest in a conversation about welfare fraud.

Have a great day

Just skimming this thread and I realise this is a derail, but something @prh47bridge and others said earlier got me wondering..

Do I understand correctly that the original (favourable to the government) IFS report assumed full 20% VAT on fees which would remain unchanged, and that only [tiny number]% of pupils would swap private school for state, and then calculated a £1.5 billion bonanza under those circumstances?

Meanwhile the government were also telling parents that schools "didn't have to pass on the 20% VAT" by means of reducing said fees?
And now many schools are indeed squeezing down their fees so that the rise is less than 20%?
Which means that the assumed tax bonanza, even if the assumed [tiny number]% of pupils really would swap private school for state, will be less than the claimed amount?
And that's without questioning whether it really will be just a [tiny number]% of pupils who swap private school for state, because if it's a slightly larger number then not only would the amount raised be lower but could easily end up costing the taxpayer?

They assumed an effective VAT rate of 15% (which allows for offsetting input VAT as well as reducing fees).

They allowed for 3-5% migration of students from private to state. That isn't only children actively moving, but also those who would have gone private but don't (or go for less time).

The made an assumption that parents choosing state over private would not change their work participation (ie SAHP vs part time vs full time) .

They assumed that parents would spend almost the entire amount they would have spent on fees on consumer goods which attract VAT.

They didn't allow for downstream tax, so didn't allow for staff losses and resulting reduced income tax and NI.

And with all those laughable assumptions, they estimated £1.3-1.5billion

Another report estimated that 10% migration would result in £0 tax take, and any more would result in a net loss.

That's without even counting any of the intangibles like impact on children's education leading to worse future productivity, and the mental health impact on children who have already suffered education loss during the pandemic.

It's daft to assume parents not spending on school fees would spend all the money saved on VAT-able goods and services - surely a lot would prioritise the mortgage and holidays abroad neither of which generate VAT (moving house to a better catchment area would generate stamp duty though).

That’s exactly what will happen, and some will choose to increase pension contributions (which actually costs the government in tax relief). This is partly why the figures used by the government are flawed and vastly over stated.

This is a typical example of governments - all governments tend to assume that no-one will change their behaviour when they raise or lower taxes. We can see this writ large in the employers' NI figures. Reeves claimed it will raise £25 billion in 2029/30. The OBR calculate that, after taking into account reduced tax income due to reductions in wages and salaries (£7.5 billion), reduced company profits (£1 billion), reduced employment and reduced hours (£0.7 billion) and increased welfare payments (£0.4 billion) all caused by this rise, it will only actually raise £16.1 billion - and £5.9 billion of that will disappear in payments to public sector employers so that they can afford the increased NI.

Education is a human right, not a luxury. It is a principle that should not be taxed and doesn’t have to be in the context of such big budget anyway.

Parents going state instead of private now are most likely to spend cash in hand on tutoring or cash to online overseas tutors. There will be a big percentage doing just that. So the taxpayer will lose out. It’s completely obvious to anyone with kids in the state school system right now. One wonders how out of touch these politicians are or hypocritical.

We’ve decided not to swap our cars, which we might have done had it not been for VAT on school fees. I’m not complaining about that; it’s no hardship. What it does mean though is that we won’t now be paying VAT on new cars. I’ve done a quick calculation - the VAT on new cars is equal to a few years of the VAT we will be paying on school fees. It also means that the local car dealership has lost out on new cars sales, impacting that business which now won’t be paying tax on profits they’d have got. It’s the knock on effect which the government don’t seem to understand.

The net result is that we will be paying no more VAT than we would have done anyway, the taxpayer is no better off, the children will be staying at the same school, and a local business has lost out. We are not alone. Other families will make other decisions with the same net effect. Some children will be forced into the state sector, at a great cost to the taxpayer.

Cash/bank transfer payments to tutors contribute towards a person earn a living, giving them money for rent, groceries etc. The taxpayer doesn’t lose out by this. I don’t believe tutoring will fall under the VAT regime as yet, but in any event, individual sole trader tutors are unlikely to earn above the VAT threshold.

And if the tutors are online and paid by an agency, then the agency is fairly likely to be UK based and pay whatever taxes it needs to here (eg employment taxes for management and customer service staff) wherever tutors are physically based.

To note, some tutoring companies eg Third Space Learning (which uses Indian tutors but is a UK company) provide services such as maths support to state schools in the UK, meaning more interventions are possible for less expenditure.

The German school occupies rolling acres adjoining the Thames in Richmond, probably the leafiest and one of the most expensive parts of London. I assume the children of diplomats and bankers attend,

The fees are only 10k a year which is a lot less than a standard UK private school in South East (more like 27k). Many German expats who have made a permanent home here use state schools instead and do just fine.

I can’t believe you really telling me that the people who work behind the tills in Tesco in Rotherham (or wherever) should be subsidising the lifestyle choices of some very rich and privileged people who admit they have no long term ties to this country?

Subsidy means "a sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low."

There is no sum of money given by the state to any of these schools. Zero. Zilch.

There is no subsidy.

The people who work behind the tills in Tesco in Rotherham (or wherever) are already giving nothing.

Schools face being marked down for taking on too many middle-class pupils under plans being considered by the education watchdog.

As part of Ofsted’s new rating system, schools would have to take their “fair share” of pupils from disadvantaged backgrounds as well as those with special education needs, according to proposals seen by the Sunday Telegraph.

The subsidy is forgoing the tax. The tax paid by every other business. The tax paid on every other luxury product

. The tax paid on every other luxury product

Education is not a luxury product. In any case, VAT is not a luxury tax. There is no VAT on caviar, cake or first class air fares.

No, the subsidy would be if those kids were educated at the state's expense. In state schools.

The double-think is so weird.

State pays for child's education = normal.
Parent pays for child's education = subsidy unless the parents additionally give the state an extra sum of money on top?!?

It makes no sense. But because Labour have repeated it enough times, people believe it.

I'm going to start referring to state schools as 'state-subsidised schools' from now on.

This article at the end has some quotes from the ISC about their legal challenge (as well as reporting on a new challenge by a single mother).

It appears there is no plan for any injunction application and no expectation or even hope that the legal challenge will be determined before January. If successful it will mean only that the government has to reconsider the policy, but the government could just shrug and carry on regardless.

The single mother suing over ‘discrimination’ of private schools VAT

www.thetimes.com/article/942a3890-4ed5-4d46-bb4b-ebc03c032f0f?shareToken=8c0863d63d2885bd5c3ef1f6e971f00c

Thanks for sharing that @TheWrongBus

”It appears there is no plan for any injunction application and no expectation or even hope that the legal challenge will be determined before January. If successful it will mean only that the government has to reconsider the policy, but the government could just shrug and carry on regardless.”

I suspect the claimants will go to the European Court of Human Rights if the Government just shrugs it off?

Oh the irony.