Coping with VAT Hike: Pre-paying Independent School Fees?

[minervafrosty]

With the upcoming VAT hike, many may feel the financial strain, especially regarding our children's school fees. Are you considering pre-paying fees to manage this increase?

If so, when do you plan to make these payments?

We are thinking of pre-paying fees ahead of this year's election. Please share with us your thoughts.

Interesting first post.

As the independent schools association are suggesting the legislation will cover this aspect of avoidance, might be a waste of time. If you’ve got the spare cash, worth a punt.

Before the VAT increase will come in the current government have insisted on another massive increase in employer contributions to the TPS?

Do you have any thoughts on why the government has been so determined to increase costs on all schools?

Since the VAT hike concerns us greatly, we've discussed it with friends. However, none of us seem to agree on the best course of action. So I believe it could be a good idea to seek advice here.

As a PP has said, there is a strong chance this won't work. Also, there does seem to be a real risk that some schools will fold as a consequence of the introduction of VAT. You need to be confident that your school won't be one of those affected. You also need to be confident that your child will be happy there for however many years you have paid for.

https://taxpolicy.org.uk/2024/01/26/school_fee_vat_avoidance/

Pre-paid fees may actually work?

"Say the election is held in October 2024. What if parents pay a full year’s fees in September 2024 rather than, as is more normal, paying for each term shortly before it starts?
From a VAT point of view, VAT will be charged at the point an early payment is made. So the applicable VAT rules would be those in September 2024, and there would be no VAT. If there was an October 2024 Budget imposing VAT on private school fees, then that wouldn’t ordinarily change the VAT chargeable the previous month."

that's why we are considering paying two or even three year's fee in advance

I am not aware of the massive contributions to the TPS... perhaps it's just a simple "eat the rich" mentality

I wonder why the government are so keen for everyone to be aware of the proposed imposition of VAT on a luxury item, but not their own big increases in costs for all schools?

We've definitely mulled over the risks. But, honestly, we've been with this school for years now, and we've got a good feeling about it. Our kid's been happy here, and that counts for a lot.

No - too risky if the school collapses. Or if we want to change schools. Couldn’t afford to in any case.

The only people I know who could afford to pay up front are those with so much money that they simply don’t need to. If school fees rise significantly, they still won’t have any trouble paying.

I do have strong confidence in the financial health of the current school and we don't think we will ever change schools before sixth form.

Have you seen their accounts, checked the reserves, looked at the movement over the last 3 years?

Many schools have struggled since Covid, pensions are pushing many down into closure and the VAT may be the last straw if parents choose to leave.

I wouldn't pay more than a year in advance unless I had checked the accounts carefully.

I know someone that owns a school, I also know a HT, both decided against.

Other schools are doing it, but T&C’s cover legislation

Like I said, might not work, but worth a punt if you have the cash.

What does YOUR school say?

VAT legislation is currently water tight on prepaying, but this loophole can be shut by the legislation. The government can draft legislation however they see fit.

If you’re definitely sending your child/children to private school then you will be paying lots of money to do this, whichever choice you make.
If you have savings then, yes, why not put some towards advance payments if your money will be heading in that direction sooner or later anyway? It doesn’t need to be for the whole lot. You could pre-pay for just 1, 2 or 3 years in advance.
You need to check throught all the parameters to do this and speak with the school. Also plan for worst case scenarios of course - mortgage payments, illness, less savings, pros and cons of taking a loan, etc.

I wouldn’t feel comfortable taking out a loan to pre-pay too much on school fees personally, but I might pay a year or two upfront using my savings. I wouldn’t want wipe my savings out completely though.

Thanks for raising those points. I've checked out their financial statements, especially since my daughter's at one of the GDST schools. They seem pretty solid, even during the pandemic. Operating profit was unaffected, and they've got a decent reserve aside. I get where you're coming from, though – it's smart to be cautious.

You need to check the T & Cs carefully, but most schools will refund fees paid in advance if you choose to remove your child (subject to the usual notice period). Some schools have a limit to the amount of cash that that they will hold in fees in advance, because it can lead to cashflow issues later on. There will be a lot of people thinking the same thing, so your school may even have reached their limit already.
Having a good feeling about a school is unfortunately a very poor guide to their financial health. I doubt schools will instantly add 20% to the fees as there are ways for them to mitigate some of the VAT increase in the first few years, but be prepared for fee hikes for years to come.

The school says they are still reviewing the situation and will let us know later when things are becoming clearer

yeah, that's the worst case scenario for us -- fee paid upfront, but no tax savings!

How does it work if your child is unable to take up their place through incapacity or death ? Do you get a refund of the prepaid fees ?

Our school requires a term's notice if you choose to withdraw a child or don't take up a place at all.

So if you pay in advance you would get a refund except for the one term notice period.

yes i can definitely share your thoughts here. may be just 2 or 3 years upfront with no loans involved

that needs to clarified, thanks for reminding us

I do checked GDST's financial statements and the admission number of my daughter's school. as far as I see it, I would say it's in healthy condition and I do not envisage school closure in the near term.

We have paid all years in advance for both DC long before the VAT was on the near horizon. If a child left the money would be refunded. We got a discount on fees for paying in advance which is why we did it, if we somehow also avoid VAT that's a bonus although I don't think that's how it's going to work as I understand the funds are held in investment and applied on account per term/year as applicable. We will see!