The clock is ticking – VAT on school fees

11 Mar 2024
  • Insights

We are now under a year away from the latest date by which the next General Election must be held (24 January 2025), so it seems appropriate to start to set out some of the things that independent schools should be considering in the event that Labour form the next Government and follow through on their promise to introduce VAT on school fees.

Until such time as legislation is published, any comments I do make are speculation, though after spending most of my working life as a VAT specialist, they are, I hope, informed speculation.

How long will schools have to prepare?

Let’s start with my first venture into political punditry as to how long schools might have to prepare. If we roll back the clock to the end of last year, there was some speculation that the Prime Minister might call an early  election in perhaps March 2024 following a tax cutting Budget in the Spring. The possibility of that seemed to recede due to the state of the economy and comments from the Chancellor that he would not have as much
headroom as hoped for a giveaway Budget.

That said, there is still pressure from the far-right wing of the Conservative party to slash taxes and in recent weeks the possibility of a May election has been mooted, despite comments from the Prime Minister that he was not
contemplating an early election. For what it’s worth, my 50 pence was on an Autumn election in either October or November, and probably the former. In recent weeks there has been talk that the Government is moving away from the idea of a November election towards one in October so that the news cycle is not dominated by events in the US should Donald Trump be elected for a second term.

In the event this does happen, I will not be able to pat myself on the back too much since my own reasons for thinking October was a possibility were based on very different reasons, largely to do with the British weather.

It is, after all, no secret that the demographics of the Conservative Party tends to be made up of older people (I hope that as a grandfather and someone who became entitled to collect a pension last year, I can say this without offending anyone). My view was that an election in October, and possibly before the clocks went back, stood a better chance of maximising the Conservative vote than one in November when it was dark and rainy, let alone one  in December or January in the run up to Christmas, with even darker, wetter weather with ice and snow perhaps preventing people getting out at all.

So where does my straying into (for me) new territory take us? Quite simply that a year is not a great deal of time to prepare for what, if it happens, will be a fundamental change for independent schools, and we may well not even have a year.

It is said that the first two stages of grief are denial and anger and much of the last couple of years have been taken up with that, but the final stage is acceptance. I think schools now need to accept it is highly likely (if not  inevitable) that VAT on school fees will happen.

With a limited amount of time, what action should schools be taking?

Firstly, I think this is too big a change to simply leave it to Bursars. They will need help, so I think that if they have not already done so, schools should be setting up a working party with Governors and the Head involved, as well as finance staff.

Secondly, and bearing in mind that absent sight of draft legislation, schools cannot predict exactly what will change, therefore the working party should be drawing up an action plan of what steps they can take to mitigate the  impact of VAT being introduced.

The plan should attempt to set out the order in which action should be taken, prioritising those that have the largest financial impact and the greatest likelihood of working at the top, so that even if a school cannot work through all of the areas, it can work through some of the most important at least.

Mitigating the impact

Over the last couple of years, various commentators have set out their thoughts of ways in which the amount of VAT that will need to be charged can be reduced. As a VAT specialist, I will set out my views on some of these areas over the next few months.

But mitigation of the impact of such a change is not solely confined to ways in which the VAT bill can be reduced. It will encompass various things, such as how much fees will need to be increased by, and how much a school might bear itself at least over the first few years after a change. This might impact on reserves policies and how much support schools can afford to give by way of bursaries and scholarships. However, such things are outside my specialism, so I leave them to others better qualified to opine.

For now, here is a list of some of the VAT aspects which schools should consider and which I will look at in more detail over the next few months:

  • Accounting packages
  • Assisting state schools
  • Being VAT registered
  • Boarding
  • Bursaries
  •  Bussing
  • Capital Goods Scheme
  • Expenditure
  • Extras
  • Fees in advance
  • Nurseries

For further advice, contact Phil Salmon directly or a member of the VAT team.

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