6 days ago
Labour's tax raid on private schools is swerved by super-rich parents who avoid £100 million by paying early
Parents at top private schools like Eton escaped £100 million of Labour's tax raid by paying fees early, new analysis suggests.
Families have paid up to five years in advance to avoid the new 20 per cent VAT on fees, which came into force on January 1.
It means super-rich families, who can afford to pay upfront, were able to avoid the tax while less well-off people still had to pay.
Annual accounts reveal the top 50 independent schools held £515 million last year in fees-in-advance schemes, which are used to pay school costs one or more years before they are due.
This is up from just £121 million in 2023, according to the investigation by the Daily Telegraph.
It suggests parents made the downpayments once Labour committed to the VAT in the run-up to the 2024 election.
Parents at these top schools – typically the most expensive – may have avoided up to £103 million in VAT.
There are more than 2,600 private schools across the UK, meaning the total figure is expected to be significantly higher.
It means the Treasury may have overestimated how much money will eventually be raised by the tax.
Mairéad Warren de Búrca, managing director at Alvarez & Marsal Tax, told the Daily Telegraph: 'It's not surprising that schools would have done this type of thing with parents and maybe encouraged parents to jump on the prepayment bandwagon.
'Only the very rich can afford to make those advance payments, so I'm not entirely sure [the Government] have managed to do what they intended.'
Labour has repeatedly stated that its VAT raid on private schools will target the wealthiest families, to raise £1.8 billion a year for public services.
However, sector leaders have highlighted that it is the smaller, cheaper schools which are being impacted the most.
Brighton College, the most expensive private school in the UK, recorded total prepaid fees of £50.1 million in last year's accounts – up from £4.1 million in 2023.
The number of pupils covered by the school's fees-in-advance scheme jumped from 86 in 2023 to 819 last year.
At Eton College, where fees will reach more than £63,000 next year, the total money in its prepayment scheme rose from £16.6 million in 2023 to £52.7 million last year.
Winchester College's fees-in-advance scheme leapt from £4.4 million in 2023 to £19 million in 2024, according to its latest accounts.
Such advance payment systems have been commonplace at many of these schools for decades, but the figures indicate a rise in parents using them.
The sums cover parents paying in advance for both one year of school fees and for multiple years.
According to Labour's rules, all pre-payments have been subject to VAT unless they were made before July 29 2024.
However, sources suggested that the Chancellor Rachel Reeves would consider ways to claw back the lost VAT.
And a Government spokesman said: 'The OBR has already factored in the increased use of prepayment schemes.'
