Effect of VAT on admissions - any intel?

[BarqsHasBite]

We are applying for secondaries for DS, main target is an independent school but he’s also tried for a partially selective state school.

Am wondering if anyone has any intel on the effect on admissions numbers of Labour’s VAT on school fees policy?

I went to the open morning for our target school and having attended the same event last year numbers did seem down. In previous years it has been fully booked, but I’d say today the hall was 3/4 full at most. However, another nearby indy was also having an open day so that could have been a reason other than VAT.

On the state school side of the coin: my friend’s son sat the entrance exam for QE Barnet and she estimated there were 4,000 boys sitting it over two days - if so that’s up around a third on last year!

Does anyone else have any actual or anecdotal insights please?

Where is the 8% from, please?

Before we committed to private secondary, we looked at the long term trends as reported by Killick & Co. I believe these were more like 5%.

Certainly, 5% is what our school was using for the first few years we were there.

We - like many people - have salaries that go up each year too. Mine by not a huge percentage (public sector) and DH’s by more, but a single figure percentage.

Additionally, the base fees are STILL subject to increase. So, in your scenario, the fees went up 8% in Sept and then will go up 20% on to in Jan, and then will go up another 8% in Sep 25.

So if they were 20k pa for the 23/24 year, they would be just under 28k for the 25/26 year. Nearly a 40% increase.

This really isn’t the case where we live in London. The majority of children that got into the grammar this year have been to private school or have transferred from another grammar. There are a few exceptions but not many.

You’re right, if a uni is using contextual offers then you will have or virtually no advantage from attending a high performing state school as opposed to an independent.

But (and I’ve never got to the bottom of this) aren’t unis still/separately under pressure simply to increase the proportion of state school entrants vs independent entrants?

And a colleague’s son got a lower offer from Bristol due to attending a school officially deemed deprived and/low performing. But on every other contextual measure son would have scored very low - parents are v high earning professionals (top 2%), live in a wealthy area, both parents went to uni etc etc. I’m quite sure they were not gaming the system/lying in any applications, it just seems that Bristol wanted to give lower offers based solely on the assessment of the school as serving a deprived community or whatever.

And there I go with another derail…

They haven’t actually dodged it yet as the rules haven’t even come in. A tax lawyer would tell them to not count their chickens there.

Make sense? That 20%is on top of everything.

This is what the government have said:

“The standard 20% VAT rate will be added to private school fees from 1 January 2025. Any fees paid from 29 July 2024 relating to the term starting in January 2025 and onwards will be subject to VAT”

educationhub.blog.gov.uk/2024/09/06/vat-private-schools-everything-you-need-to-know/

I’m lawyer, but not a tax specialist - I’d be feeling reasonably confident based on the above if I’d been invoiced for and paid 12 years fees before 29 July.

Although that assumes that the Labour government have any principles or integrity and will stick to their word, but sadly they’ve show themselves to be as bad as the Tories in that regard….

I’d be very dubious about the claim of ‘adding inflation’ for a bill due 12 years from now. Like, if you know what inflation will be even next year, let people know?

Any business adding 20% on in full when their business becomes taxable is either inflating prices or adding hidden charges. The cost to the end user should be a rise significantly less than 20% due to the offsets and reclaimables in their supply chain.

Private schools have priced themselves over the market by 15 years of above inflation increases (which as PP say seem to have produced none of the current outcry). Private schools used to be mainstream for the professional classes, most have now priced themselves out of that audience.

As many financial commentators have been saying since long before the VAT rules were proposed - when private schools price themselves away from doctors, lawyers, accountants, regional bank managers, local small business owners they have made a decision to minimise their local pool. That isn't the fault of any government, its poor business planning.

“The cost to the end user should be a rise significantly less than 20% due to the offsets and reclaimables in their supply chain.”

The major cost is teaching staff and pensions, which isn’t reclaimable. New buildings and building improvements might be reclaimable, if they have happened or are planned.

What else would you identify as reclaimable in the supply chain?

Somehow, people tend to not to quote the next sentence in that guidance:

"Any fees pre-paid before 29 July 2024 for tuition and boarding from 1 January 2025 may also be subject to 20% VAT depending on the arrangements that the pre-payment scheme made."

From https://assets.publishing.service.gov.uk/media/66a7a1bdce1fd0da7b592eb6/TechnicalNote-DIGITAL.pdf

"2.32 The government is aware that, whilst many schools have always offered schemes enabling pre-payment of fees, there have been reports of increased numbers of parents utilising such schemes recently in an attempt to avoid these fees being subject to VAT. In many cases, the structure of these schemes means that the tax point has not yet been passed. For instance, if the scheme involved paying a lump sum to the school in advance, but the details of the supplies that the money was buying were not determined at the time the money was paid (i.e. if the money paid did not relate to specific terms’ fees that had already been set), HMRC stands ready to challenge the validity of such payments and will seek to collect VAT on those fees where it is due. Indeed, the government is committed to tackling tax avoidance and in line with the principle to ensure that the changes are fair and that all users of private schools pay their fair share, HMRC will be carefully scrutinising the detail of these schemes to ensure that schools pay the correct VAT where it is due." (my emphasis)

HMRC have not yet issued guidance on how they intend to treat the tax point for services which are paid for years in advance. They can decide to challenge a scheme up to four years after a potential tax point. If they choose to challenge a school's treatment of VAT, the school can either send the VAT or else take them to court. Court cases involving tax issues can easily take five or more years to reach a resolution.

It is the schools which will be responsible for collecting VAT on prepaid fees if it is eventually ruled to be due. It would be a very brave school which decided to allow parents to exhaust the prepaid amount without retaining reserves to pay the VAT before any final ruling.

What do QE Boys count as an applicant? DC who register for the exam and DC who actually sit the exam? Typically, something like 20-25% of the girls who register for the Henrietta Barnett exam don't show up on the day.

Very fair points @user149799568 and I stand guilty of reading and running and not reading properly!

I’m assuming the school has left open the ability to claw back VAT if the arrangement does not stand up to HMRC scrutiny and that the parents have decided it’s a risk worth taking.

I found it surprising that the gov stated that any fees paid after 29 July would be subject to VAT, rather than just saying “Any fees paid relating to the term starting January 2025 onwards” will be subject to VAT (ie regardless of when paid). There must be some technical legal reason for that, will see if I can pin down a tax specialist colleague on it.

I’m literally going by previous threads on Mumsnet. I’ve seen 8% bandied about a lot.

Ok doke.

@turkeymuffin

Contextual offers are very rarely based on just attending a state school.

Bristol is about the only university that doesn’t require other factors to be also applied, such as ACORN or POLAR4 data, FSM, refugee or care status, being a carer etc.

And many universities (Oxbridge especially) consider where GCSEs were taken alongside where A levels were sat.

So no, moving to state for 6th form is very unlikely to help ex PS educated children to get a contextual offer.

Top grammar - up 400-600 applicants on previous couple of years.

Thanks @Ubertomusic - how many applications in total did they get?

Over 3000.

The VAT on school fees is going to court I read under the human rights umbrella. I'll see if I can find it

"Labour’s VAT on private school fees faces high court challenge over human rights concerns" https://bmmagazine.co.uk/news/labours-vat-on-private-school-fees-faces-high-court-challenge-over-human-rights-concerns/?amp

Widely expected to lose.

By who? I have been following this closely and there is no commentary on this so curious where the “widely expected to lose” comes from.

"SinclairsLaw: Education" https://www.sinclairslaw.co.uk/services/education

These solicitors are handling the case

Sorry to ask a side question but does anybody know what universities think of kids who have got cut out of the system entirely and had to home school?

I mean those kids who had to come out of private schools, but couldn't get a place at a state school, and so end up home schooling?

I'd be interested to know how that affects their university application, assuming that they still get about the same grades as they would have had anyway.

I haven't seen much lately, tbf, but when court challenges first came up I saw a load of people on twitter just say 'yeah, not going to work' and then move on.

e.g. Dan Neidle the tax expert who uncovered Nadhim Zahawi's dodgy tax dealings: https://x.com/danneidle/status/1795523122923474982?s=61&t=U9XrcF693-JpMxeIueYG7g\

I'd have thought the lack of commentary was a sign of complete lack of interest in the challenge due to it being irrelevant. All the discussion I've seen expects VAT from Jan.

I could be totally wrong, I know nothing about tax law, that's just my take on it.

There's precedent which indicates that it will lose. Widely commented on in threads mentioned by noblegiraffe that this is an example of unscrupulous law firms getting money for an action they are well aware will fail.