Private schools VAT under a labour government: Implications and strategies

The prospect of VAT being applied to private school fees has generated significant buzz in the media. With a newly elected Labour government, this potential change has become a reality, impacting the families paying for education and the private schools themselves. In this article, we explore the implications of VAT on private schools under a labour government and provide guidance for both schools and parents. The labour party has pledged that private schools will look to charge 20% of VAT on fees, to raise money which will be invested into state schools.

The challenge

Private school fees are already a substantial financial burden for many families, a 20% increase due to VAT could exacerbate this struggle. Private schools, too, face challenges as they contend with rising costs and many are now already seeing enrolment declines. Additionally, private schools may be forced to cut scholarships due to financial pressures caused by the VAT charge.

Avoiding upfront payments

Some families have considered making upfront payments to avoid the additional 20% VAT on fees, an option which many schools are now making available. However, Sandy Cochrane, Gravita VAT Partner, advises that care should be taken when considering making such payments.  In addition, this does not take into account potential retrospective changes to the VAT treatment that could result in any payments being made now being subject to VAT at a future date.

Schools: “Do your homework”

To avoid getting into hot water, schools must carefully navigate the VAT landscape. Implementing a VAT regime into their existing financial practices, similar to other businesses, is essential. Working with advisors, such as Gravita, can help schools identify VAT-recoverable expenses and manage their financial obligations effectively.

Strategies for parents and schools

Help is at hand if Labour implements this change. By collaborating with knowledgeable advisors, schools can recover some of the VAT. This, in turn, may allow schools to lower fees, alleviating the financial strain on families.

What next?

As the political landscape evolves, schools and parents must stay informed and adapt their financial strategies accordingly. VAT on private school fees need not be a burden if managed wisely. If Labour wins the general election and implements this change, there will be ways in which schools may be able to recover the VAT.

We suggest working with an advisor, like Gravita, who can help you identify what outgoings, costs and activities are recoverable. Implementing a VAT regime into your school (or business), is something we do on a regular basis, with many clients.

Schools would also need to consider future methodologies and forecasting when it comes to incorporating VAT into their financial modelling. And of course, at Gravita we can guide you through the nuances of this process.

If you would like to get in contact with our VAT team, please contact us here or email vat_team@gravita.com.