The new prime minister, Sir Keir Starmer is to proceed with Labour’s manifesto plans to levy VAT on fees for independent schools and reduce their current business rate exemptions from January 2025.
The Institute for Fiscal Studies (IFS) has estimated that the scheme will raise around £1.6 billion a year in extra tax revenue. However, a likely consequence of the increased fees is more children moving away from the private sector into state education, raising further government costs. The IFS estimates this figure to be around 40,000 students.
The government has confirmed that there will be one exemption from the fees. Pupils who hold an EHCP which identifies educational, health and social needs will not have VAT added to their independent school fees.
Going forwards, schools will also be able to recover VAT on their own capital expenditure.
Payment in advance
Many schools already have ‘fees in advance’ payment schemes and some had originally suggested that parents use this to circumvent the VAT addition. However, anti-forestalling provisions have already been introduced to stop this scenario – as they have when previous changes to VAT have occurred.
Funding
If you or your adult offspring have children in private schools, it is a good time to ensure that your cash flow planning is up-to-date, with the full facts of your current and predicted income and expenditure. As parents or grandparents, you might be looking at how best to fund the increased school fees as part of a wider financial plan and may be considering intergenerational wealth management to assist if possible. Please call us if this matter might impact you.
