Latest news with #private school fees
Telegraph
3 days ago
- Business
- Telegraph
Reeves ‘vastly underestimated' scale of private school parents' VAT rebellion
Rachel Reeves 'massively underestimated' the scale of parents paying private school fees upfront to avoid VAT, internal Treasury forecasts suggest. Experts who reviewed documents obtained by The Telegraph said that Whitehall was not expecting the hundreds of millions of pounds of school fees that were paid in advance last year, ahead of the tax raid coming into force on Jan 1 2025. A total of £515m flooded into the advance fee schemes of the top 50 independent schools alone, allowing parents to avoid paying the 20 per cent levy imposed by ministers. This money is used to pay school costs one or more years before they fall due. Internal Treasury forecasts obtained by The Telegraph suggest this vastly eclipsed government predictions. Ms Reeves, the Chancellor, announced last year that all fee prepayments from July 29 would be subject to VAT, as the Government tried to clamp down on the potential tax loophole. Treasury calculations shared with ministers last summer show they expected to raise £90m in VAT from fees in advance schemes made beyond that date. This would equate to tax on around £450m in upfront school fees after July 29 last year, since VAT is charged at 20 per cent. The documents obtained by The Telegraph reveal that the Government also considered trying to capture fee prepayments made from May 22 2024 – the date Rishi Sunak called a general election – but ultimately rejected this option. The internal Treasury advice said it expected doing so would raise an additional £30m in VAT, bringing the total forecast for money raised by charging the 20 per cent levy on fee prepayments to £120m. This would equate to parents handing over around £600m in fee prepayments across all 2,600 private schools in the UK. However, private schools' annual accounts suggest the total is likely to be significantly higher. Eton College alone received as much as £52.7m in upfront fees from parents ahead of the July 29 deadline. This would have handed the Treasury an extra £10.5m in VAT if the tax were applied to Eton's prepaid fees alone. Treasury officials said in the documents: 'As demonstrated by the small differences in the costings, not legislating back to an earlier date in time does not mean that we expect to lose significant amounts of revenue.' They added that it would be 'difficult to justify' trying to retrospectively tax fee prepayments 'given the legislation would be giving effect to the policy before the details… were known'. Tom Clougherty, executive director at the Institute of Economic Affairs, said: 'It does appear that the Government massively underestimated the behavioural effect of introducing VAT on private school fees. 'Prepayment has clearly been far more significant than the Treasury anticipated when preparing the policy, but I suspect that is just one part of a wider picture. More children have been withdrawn from the independent sector, and more schools have closed, too.' Mairéad Warren de Búrca, managing director at Alvarez and Marsal Tax, said: 'I think they've just done what a lot of people have done, which is underestimate how much cash is available and also the lengths to which parents would go to to fund private education in the most cost-effective way possible.' The internal Government communications obtained by The Telegraph do not include forecasts about the potential use of prepayment schemes prior to May 2024. They instead show the Treasury drew up its own internal forecasts for expected revenue gain from both VAT and prepayment schemes, and that these were later analysed by the Office for Budget Responsibility. The documents reveal Treasury officials defended targeting parents who paid fees upfront, saying: 'It is unfair that those who are financially able to pre-pay should benefit over those who cannot.' A Whitehall source said the Government had always predicted a huge rise in the use of fees in advance schemes by the richest parents trying to avoid VAT, and that ministers were confident they could recoup most of the money. HMRC has said it will now 'carefully scrutinise' prepayments amid concerns that some schools may have abused the financial mechanisms to avoid VAT. The Government is expected to target schools that set up fees in advance schemes in a hurry ahead of the VAT start date, or those that used them more like 'deposits'. For prepayments to be treated as genuine, they must contractually apply to a specific service at a specific price – rather than a vague lump sum to be sorted out at a future date. It is expected to spark lengthy legal battles between both HMRC and private schools, and potentially between parents and private schools over who is liable for unpaid VAT. Tax experts said it could lead to parents suddenly being told they are on the hook for tens of thousands of pounds in tax several years down the line. A government spokesman said: 'The Office for Budget Responsibility has already factored in the increased use of pre-payment schemes in its revenue forecasts. 'Removing tax breaks for private schools is expected to raise £1.8bn a year by 2029-30. 'This funding will help us recruit 6,500 new teachers and improve standards in state schools, which educate 94 per cent of children.'
Telegraph
4 days ago
- Business
- Telegraph
‘Leave our kids alone': One parent's anger as school fees rise under Labour
As a small business owner, Emma says the new VAT on private school fees is hitting families like hers hard. 'It's now just under £10,000 pounds for each term in the senior school,' she says. 'By the time we're paying the school fees… My husband and I have paid our taxes. We've absolutely done everything we can.' Instead of spending money on luxuries, she adds, 'my husband and I are putting money into the local economy, paying local teachers… And that's even before you get into all the kind of charity work the school does'. Emma is frustrated by what she sees in school catchment areas. 'There's a moral turpitude to that kind of attitude… renting flats near the school, not even living there to get the residency… How can you live with yourselves?' Meanwhile, private school parents are painted as villains. 'When we get vilified as private school children, parents… I do start to lose the plot a bit.' Her message to the Government is simple: 'Leave our kids alone.' She adds, 'By not sending my two children to state school, I'm saving the Government… about seven and a half thousand pounds per child per year… We're not taking anything away from the state at all.'
Times
5 days ago
- Business
- Times
HMRC could claw back millions in VAT from advance school fees
HM Revenue & Customs could recover more than £500 million in private school fees that have been paid in advance to avoid VAT, tax experts say. Hundreds of millions of pounds in fees were paid upfront before the 20 per cent tax came into effect on January 1 this year. Britain's top 50 independent schools received £515 million in advance fees last year, up from £121 million in 2023, according to analysis by the Daily Telegraph of the latest annual accounts at Companies House and the Charity Commission. Tax experts told The Guardian that money saved using the advance payment schemes could be clawed back by the government. They said HMRC would scrutinise the schemes to check whether they included specific details such as set prices, without which parents could be vulnerable to VAT demands in years to come. Dan Neidle, a tax lawyer and the founder of Tax Policy Associates, said many schools used fee-in-advance schemes such as a deposit. He said: 'We reckoned [there's] a high chance that didn't work from a VAT perspective, because VAT then applies at the point each year's fees are invoiced. The question is whether HMRC will be challenging these.' The Treasury has said the Office for Budget Responsibility considered the use of prepayment schemes when making its forecasts for how much money would be raised by the VAT raid. The Treasury expects VAT on school fees to raise £1.8 billion a year ALAMY Fees gathered from prepayment schemes have risen at the UK's most expensive schools, including Brighton College, which recorded £50.1 million in total prepaid fees last year, an increase of £4.1 million from 2023. Only 86 of its pupils were covered by the school's prepayment scheme in 2023. That figure increased to 819 last year as parents scrambled to beat the VAT deadline. Eton College collected £52.7 million in advance fee payments last year, up £16.6 million from 2023. At Winchester College, fees collected in advance rose to £19 million last year from £4.4 million the year before. More than 50 independent schools have closed or announced plans to shut since Labour imposed VAT on fees. The government predicts that 100 schools could shut over the next three years. Leaders in education said that the policy was already driving out pupils and putting more schools at risk of collapse.
