Currently, private and independent schools do not have to charge VAT on their fees due to a legal exemption.
Snapshot Summary
Under UK VAT law, education provided by an ‘eligible body’ such as a registered independent school, is considered an ‘exempt’ supply for VAT purposes.
What are the proposed changes?The Labour Party are proposing to, if they win the election, implement VAT on fees to send children to private schools.
How soon could these VAT changes come into effect?If Labour wins the election on July 4th, they could theoretically pass a law at a time of their choosing to change the definition of 'eligible body' to exclude independent schools. However, these changes will likely be announced in their first Budget in the autumn, and it won’t be until then that we know more detail about exactly what is being proposed, and also the timing of when it will come into effect.
Why are Labour proposing these changes? Labour have pledged that by private schools charging 20% VAT on school fees, it will raise money which will be invested into state schools. They are predicting that it would raise more than £1 billion a year.
What are the challenges with these proposed VAT changes to private school fees?
- Private school fees are already a substantial financial burden for many families, a 20% increase due to VAT could exacerbate this struggle. Parents may find it a challenge to afford the increased fees.
- Private schools, may face challenges as they contend with rising costs, and there is speculation that they will see enrolment declining.
If these changes come into effect, what could you do to offset/mitigate these increased fees?
This increase in school fees will understandably put financial pressure on many parents and families, and undoubtedly many business owners will be asking the obvious question - 'Can I use the cash in my company to pay for these increased school fees?'
Balancing the rising cost of living and funding your children's upbringing is an ever-increasing challenge. Children growing up through their life can cost money in lots of different ways - or, does it have to cost so much? The reality is, for many company shareholders there is a hidden tax cost on these extra drawings used to support their family wellbeing and needs.
Business owners will be seeking more ways to tax-efficiently extract cash from their business. There is always a significant need to do this, but likely to be even more so with a potential increase in private school fees, along with other family and life needs. At Oldfield we are confident in helping business owners unlock more cash out of their company in the most tax-efficient way to provide for their personal and family needs.
Our tax consultants are extremely experienced and knowledgeable in this field, with the firm having nearly 50 years of experience. Our approach to profit extraction is specifically developed and designed with business owners in mind.
If you would like to find out more about how we could help you extract profit from your business tax efficiently click here to find out more. Or to have a discussion with one of our tax advisors on how Oldfield could help you extract profit, please click the below button.
Please note: This article is provided for information only and was correct as at time of writing (24/06/24). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.
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