Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
A number of private schools across the UK have started to advertise schemes that allow parents to pay fees for multiple years in advance in an apparent effort to circumvent Labour’s plan to tax independent schools if it wins the next election.
Labour leader Sir Keir Starmer said in 2021 that if he won power he would end a long-standing VAT exemption for private schools, which would add 20 per cent to the cost, raising up to £1.5bn to fund state schools, according to the party’s estimates.
Many UK independent schools already offer some form of advanced payment scheme, including a small discount for multiple terms or years paid in advance. But discount rates have not been that attractive and take-up has tended to be low.
At least eight small and less well-known private schools appear to have either introduced a new “fees in advance” plan or started advertising their schemes much more prominently.
However, more established schools have avoided rolling out new schemes or widely advertising existing ones on the grounds they are liable to be charged tax on the payments at a later date, according to people briefed on their thinking.
Solihull School in the West Midlands has started advertising a new fees in advance scheme, “in consideration of the current economic environment”. A brochure published this year states that fees do not currently include VAT but could in the future depending on legislative changes.
Boundary Oak School in Portsmouth has started advertising a fees in advance scheme that did not appear on the fees page of its website before 2023, according to earlier screengrabs of the website.
It states: “Should a future government introduce VAT on fees please note that the tax point is the earliest of the two dates: the date of payment, or the invoice date. Therefore any fees paid in advance of any change in VAT would not be subject to VAT.”
Labour is expected to introduce some form of “anti-forestalling” measures if it changes tax policy to cover the period between an official announcement of a tax change and its imposition.
But it could also introduce retrospective legislation that would include payments made before the party came to power for the supply of education from April 2025 onwards.
There is a precedent for this type of retroactive legislation. In 2019 the so-called loan charge came into force allowing HM Revenue & Customs to demand up to 20 years worth of tax on income earned through a controversial scheme in which employees were paid through loans rather than a salary as a way of avoiding tax. Multiple court challenges to the law have failed.
Even if Labour did not introduce this kind of legislation, tax experts say HMRC could challenge some advance fee schemes on the basis that they do not actually pay fees in advance; rather they deposit a sum with the school for future payment.
The accountancy firm Haysmacintyre produced a briefing last year that said firms that actively market a pay in advance scheme as a way of avoiding paying tax risk being challenged by HMRC.
Dan Neidle, a tax expert at Tax Policy Associates who has looked into fees in advance schemes, said he was “concerned that parents and schools don’t appreciate that these schemes run the risk of a challenge by HMRC that could result in large unexpected VAT charges, years after the event”.
Neidle added that “if Labour are planning to legislate retrospectively, they should announce this now, before the situation runs out of control”.
Julie Robinson, chief executive of the Independent Schools Council, said “fees in advance schemes are perfectly legitimate and have been used for a number of reasons over the years — for example, when a family has been left a legacy”.
She said schools have been advised that advance payments should not be marketed as a tax loophole.
Charles Fillingham, executive headmaster at Solihull, said its scheme was launched “as a response to enquiries from parents”, adding it had “taken legal advice and our scheme meets all the requirements of UK laws”.
Boundary Oak did not respond to a request for comment.
Credit: Source link
