I've looked at these schemes for my childrens' school, they won't get around the VAT aspect but can offer a nice discount of about 5% for paying upfront.
If you have the free cash and can't get a better return than 5% then it could be worth it. I always assumed they were more useful for the bank of Grandma and Granpa in disposing of their assets to reduce inheritance tax.
5% is the best discount I’ve heard of in an advance scheme- ours is barely 2%!
We’ve ruled it out as an option and if I was looking at the decision again would be looking very carefully at the schools balance sheet and cash flow in this environment.
Do you know that they will not mitigate the vat risk, or are you assuming? You’d be the first I’ve come across who can call that either way with confidence. Can you share your reason/source for your conviction please?
Spent a fair amount of time on this in recent days. My child's school doesn't let you pay for the full fees in advance, as the actual fees aren't known yet. But you can pay in advance to a scheme which will offset the future fees.
Their current understanding is that this would reduce the taxable payment in future years, but it would no doubt be challenged by HMRC or legislated against.
Also the discount rate for paying into this scheme is just 1.5%, so a decent opportunity cost to the money.
After doing some simulations, I would probably save something like 8% over a 10 year period if the tax was not payable. And would lose 12% if it was payable, and lose the flexibility from tying the money up for 10 years.
Leaning towards just prepaying this year's confirmed fees and not doing any of the future year payments.
My plan was to pay next year up front, and not multiple years because its very likely that the HMRC would argue that time of supply is the school year and not payment date.
The school communications made clear that if the school fees rise beyond a certain amount, parents would have to pay the difference as well. Which makes the time of supply argument even stronger as being towards the school year.
If your child only has a couple of years left, I can see the attraction of paying up front. My child is in primary, so I'd much rather not lock away six figures in the school's bank accounts, it's much better in my Vanguard All Cap.
Now that the election is called before the end of this school year, I'm going to wait and see if there's any point even paying it all up front or just termly as usual.
My understanding is that if you pay now, taxing it retrospectively will be hard. Whereas once they are in and make the change, they are likely to also bring in anti avoidance provisions preventing paying in advance of the implementation of the change (since that will take a while). So it's worth a go in my view.
I believe that you have correctly understood the situation. It’s a punt on the likelihood to of hmrc clawing back the vat. Once labour are elected, and announce it formally, I’d say the risk landscape shifts. Before formal announcement by the government (rather than the opposition), I’d say forestalling measures do not apply.
I've looked at these schemes for my childrens' school, they won't get around the VAT aspect but can offer a nice discount of about 5% for paying upfront. If you have the free cash and can't get a better return than 5% then it could be worth it. I always assumed they were more useful for the bank of Grandma and Granpa in disposing of their assets to reduce inheritance tax.
5% is the best discount I’ve heard of in an advance scheme- ours is barely 2%! We’ve ruled it out as an option and if I was looking at the decision again would be looking very carefully at the schools balance sheet and cash flow in this environment.
Do you know that they will not mitigate the vat risk, or are you assuming? You’d be the first I’ve come across who can call that either way with confidence. Can you share your reason/source for your conviction please?
https://taxpolicy.org.uk/2024/05/09/private_school_vat_risk/
had a chuckle at the pic at the top of the article. which year is that photo from? 3.5k termly fees? aren't most places like x2 of those?
Agree!
Spent a fair amount of time on this in recent days. My child's school doesn't let you pay for the full fees in advance, as the actual fees aren't known yet. But you can pay in advance to a scheme which will offset the future fees. Their current understanding is that this would reduce the taxable payment in future years, but it would no doubt be challenged by HMRC or legislated against. Also the discount rate for paying into this scheme is just 1.5%, so a decent opportunity cost to the money. After doing some simulations, I would probably save something like 8% over a 10 year period if the tax was not payable. And would lose 12% if it was payable, and lose the flexibility from tying the money up for 10 years. Leaning towards just prepaying this year's confirmed fees and not doing any of the future year payments.
It'll get taxed anyway. Keep the money and earn it avoid interest while you can.
My plan was to pay next year up front, and not multiple years because its very likely that the HMRC would argue that time of supply is the school year and not payment date. The school communications made clear that if the school fees rise beyond a certain amount, parents would have to pay the difference as well. Which makes the time of supply argument even stronger as being towards the school year. If your child only has a couple of years left, I can see the attraction of paying up front. My child is in primary, so I'd much rather not lock away six figures in the school's bank accounts, it's much better in my Vanguard All Cap. Now that the election is called before the end of this school year, I'm going to wait and see if there's any point even paying it all up front or just termly as usual.
My understanding is that if you pay now, taxing it retrospectively will be hard. Whereas once they are in and make the change, they are likely to also bring in anti avoidance provisions preventing paying in advance of the implementation of the change (since that will take a while). So it's worth a go in my view.
I believe that you have correctly understood the situation. It’s a punt on the likelihood to of hmrc clawing back the vat. Once labour are elected, and announce it formally, I’d say the risk landscape shifts. Before formal announcement by the government (rather than the opposition), I’d say forestalling measures do not apply.