VAT on Private School Fees – Any Planning?

The Institute of Fiscal Studies (IFS) indicates charging VAT on private schools would generate revenue of £1.6bn per year, which Labour claim would fund 6,500 extra teachers.

Many parents have been asking if there is any planning to avoid the 20% increase in private school fees. However, the actual increase may not technically be a full 20% for parents as schools would be able to reclaim some input tax on overheads and property maintenance, potentially off-setting a lower cost base against a slightly higher term fee.

One possible strategy involves pre-paying term fees in advance, often for multiple years rather than pay a term at a time.  This strategy relies on accelerating the “tax point” for the service (see below). There may be anti-forestalling legislation, effective from the day of the announcement, but although Labour have stated that any legislation will not be retrospective, the effectiveness of such strategies cannot be guaranteed.

“TAX POINT” FOR VAT

The time of supply is the earlier of:

·       the date when the supply is ‘really’ made, referred to as the basic tax point;

·       the date when a tax invoice is issued in respect of the supply; and

·       the date when payment is received for the supply.

There are a number of refinements to be borne in mind in applying this basic rule, particularly the 14-day rule, and there are also special rules for certain kinds of supply.

If a VAT invoice is issued within 14 days of the basic tax point, the basic tax point can be ignored in fixing the time of supply and the date when the invoice is issued is used instead.

The invoice must be a proper VAT invoice and must be issued by the supplier to their customer.

It is possible to opt out of the 14-day rule, but this must be notified in writing to HMRC