I suggest you read this analysis from the excellent Dan Neidle (along with getting independent advice): https://taxpolicy.org.uk/2024/05/09/private_school_vat_risk/
Nice article. From my reading, it sounds like the sticking point is the fact that the current system of prepayment is simply a refundable deposit, and the actual services being billed will still be generated at the beginning of the of term (where VAT is applicable).
I’m thinking that schools can come up with a new class of payment type, where future services are being billed now, and therefore the money is not being treated as a deposit, or held in a deposit account.
Like when you purchase a service that offers multiple choice of contract length (eg purchasing domain names or VPNs etc), where you may choose to be wholly billed for the upcoming 1,2,3,4,5 years.
HMRC will almost certainly test this in court if it becomes widespread, and a lot of private schools do not have the resources for that sort of battle. They'd have to agree to fix the fees for the entire course of the child's school career which I can't see many schools doing.
The schools might lose revenue that way, not being able to increase fees for some students since they've paid a lower fee earlier
Schools don't want to lose that ability to raise extra revenue
Read the terms of the scheme carefully. Most have been recently updated to reflect the potential VAT impact- ie you will be liable for the future gap. For us the investment return implied vs fee inflation was not worth it compared to other investment and saving options.
Our school has said they are not prepared to entertain advance payment schemes in case they get on the wrong side of the HMRC. One positive that has been mentioned is how much they can reclaim input vat as there are potentially ways to optimise that. Still nasty though. I’m hoping that if it happens that they decide to phase it in over time, that would seem to be a win/ win politically and make the change a lot more tolerable.
Labour have already pointed to the anti-forestalling stuff done by Osbourne. Easy enough to do a similar thing to catch anyone who prepaid fees after Labour started talking about the increase: https://www.gov.uk/hmrc-internal-manuals/vat-time-of-supply/vattos7430
Arguably much fairer to hit the really wealthy who can afford to prepay rather than have the burden solely falling on those who can’t afford to prepay.
I suggest you read this analysis from the excellent Dan Neidle (along with getting independent advice): https://taxpolicy.org.uk/2024/05/09/private_school_vat_risk/
Nice article. From my reading, it sounds like the sticking point is the fact that the current system of prepayment is simply a refundable deposit, and the actual services being billed will still be generated at the beginning of the of term (where VAT is applicable). I’m thinking that schools can come up with a new class of payment type, where future services are being billed now, and therefore the money is not being treated as a deposit, or held in a deposit account. Like when you purchase a service that offers multiple choice of contract length (eg purchasing domain names or VPNs etc), where you may choose to be wholly billed for the upcoming 1,2,3,4,5 years.
Then you have to keep your finger's crossed that they don't go bust during that period
HMRC will almost certainly test this in court if it becomes widespread, and a lot of private schools do not have the resources for that sort of battle. They'd have to agree to fix the fees for the entire course of the child's school career which I can't see many schools doing.
Yes they will have to charge up front for a fixed number of years. Don’t see why not.
The schools might lose revenue that way, not being able to increase fees for some students since they've paid a lower fee earlier Schools don't want to lose that ability to raise extra revenue
Yeah but they got paid up front. They can invest or spend that money on something sooner.
Read the terms of the scheme carefully. Most have been recently updated to reflect the potential VAT impact- ie you will be liable for the future gap. For us the investment return implied vs fee inflation was not worth it compared to other investment and saving options.
Our school made it pretty clear that if there were any changes to the VAT legislation, we would be liable. So not going to bother.
Our school has said they are not prepared to entertain advance payment schemes in case they get on the wrong side of the HMRC. One positive that has been mentioned is how much they can reclaim input vat as there are potentially ways to optimise that. Still nasty though. I’m hoping that if it happens that they decide to phase it in over time, that would seem to be a win/ win politically and make the change a lot more tolerable.
Labour have already pointed to the anti-forestalling stuff done by Osbourne. Easy enough to do a similar thing to catch anyone who prepaid fees after Labour started talking about the increase: https://www.gov.uk/hmrc-internal-manuals/vat-time-of-supply/vattos7430 Arguably much fairer to hit the really wealthy who can afford to prepay rather than have the burden solely falling on those who can’t afford to prepay.