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Mitigating Labour VAT on private school fees

by Andrew Stanton

13 June 2024

Explore the potential Labour VAT threat on private school fees and prepayment strategy to swerve the VAT risk.
You may have heard, the UK general election is underway! Whilst I have no crystal ball about who is going to become the next UK Prime Minister, one of the policies within the Labour manifesto does potentially give rise to a VAT planning opportunity.

What is the Labour VAT threat?

Labour’s manifesto promises to introduce VAT standard rate, currently 20%, on private school fees. Currently these fees are VAT exempt. To fulfil this manifesto pledge would require a change in the VAT legislation, which again Labour has indicated will be done at the first budget, should they win the election. This budget is likely to be in the autumn of 2024. There would also have to be some change in the charity VAT legislation as the number of private schools are also charities. Although the Labour leader stated he does not wish to remove the charitable status from private schools, not doing so could scupper the flagship policy. Whilst it is highly unlikely that any legislation would be retrospective, it may include some anti forestalling measures. This means that the change in taxation could be implemented from the date after the general election.

How can parents protect themselves from this Labour VAT risk?

Pre-paying school fees now, in advance of any VAT change, could crystallise the VAT position and give the benefit of the VAT exemption going forward for a period where Labour would be seeking VAT to be applied at standard rate. It may be possible, with the school’s co-operation, to prepay multiple years rather than just a single year. Obviously both schools and parents will need to understand the implications of prepaying school fees, and we are aware that some schools already offer a prepayment option, which, if they do, you may like to consider. If they do not, you could approach the school to see if they will take an advance payment from parents given the current circumstances.

What are the benefits of this VAT strategy?

Prepaying for services is a relatively low risk strategy and carry less of a reputational risk for the school involved than the other options that might be available such as a donation or a loan. Notwithstanding any of the above, schools will need to change the terms and conditions of a parent contract to permit the charging of VAT in addition to the stated fee. Contracts that do not explicitly state this would be regarded as inclusive of any VAT that is now chargeable.

Our VAT experts are here to help

If you would like to discuss any aspect of this potential VAT opportunity further, please feel free to get in touch with me, Andrew Stanton.

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