Removal of VAT Exemption

[Chris Blewett]

If the removal of VAT exemption from independent school fees goes ahead - what will be the likely affect on CH?

[Katharine]

If the removal of VAT exemption from independent school fees goes ahead - what will be the likely affect on CH?

I’ve been wondering that too! I didn’t hear the King’s speech but heard a comment tat all it would take would be a sentence in the next budget.

[loringa]

The VAT will only be levied on the fees actually paid so I would imagine would not be all that significant a figure for most parents in receipt of major bursaries, ie the majority. For the full fee payers, they are genuinely going to have the broadest shoulders, but I suspect we may see a reduction in their numbers which some may see as not entirely a bad thing.

I am interested to know what is going to happen to those children who are educated in state boarding schools. If I understand correctly, they do not pay fees for their tuition, only for their board. Will they then pay VAT on the boarding element? If not, it is going to be more of a challenge to levy VAT on the residential element of boarding school fees which is pretty easy to assess, ie fees paid minus day school fees, for pupils in independent schools.

Also, Christ's Hospital remains, despite the advent of full fee payers, largely true to the founder's intent so may be in a strong position to seek an exemption along with a number of other schools such as the Royal Hospital School in Suffolk. The foundation would, however, undoubtedly be in a stronger position if it had never allowed in the full fee payers (see numerous other posts on this subject).

[MrEd]

VAT is a tax of monstrous complexity and I could well imagine that the support given by the Foundation to those not paying 'full fees' might be regarded as a subsidy to a 'supply' and so it might be made liable to VAT, just saying. The purpose of this VAT is not to raise revenue but to undermine the charitable sector.

Here's some information on the delights of VAT and subsidies: https://www.gov.uk/hmrc-internal-manual ... vatsc06315

[Foureyes]

As a matter of interest, all the discussion so far has been on the imposition of VAT on pupil fees. I quite understand that, but is there not another aspect? Are independent school currently required to pay VAT on goods and services? By this I mean if you and I as private citizens buy (say) a new computer we pay the cost PLUS VAT to the supplier who is then obliged to render a consolidated annual VAT payment to HMRC. So, if independent schools were not exempt this would amount to another hefty VAT payment.
An aside. When I was in the Army and stationed in Germany we were covered by a NATO agreement that troops on foreign soil were exempt from VAT (known in Germany as Mehrwehrtsteuer). So, if one went downtown and bought a computer in a German shop you had to complete a complicated form, but it was worth the effort as it saved a lot of money. The downside of this was that no VAT was charged on booze bought from German sources (i.e.millions of gallons of beer) which meant that alcohol was dirt cheap in all Messes and unit bars - which led to a lot of drunkenness, but that was another issue!
David

[Chris Blewett]

I understood that VAT would be imposed on Private School Fees / but I may be wrong!!!

[scrub]

My, admittedly shaky, understanding of the whole thing, is that VAT would be added to school fees, but the charity status would remain the same. I assume that means the school itself doesn't pay VAT on things, only that VAT is levied on fees paid.

My basic understanding of the whole debate is that removing the charity status from independent schools would raise more money than putting VAT on fees, but was an order of magnitude trickier, so, fees are the way to go. Whenever they get round to it. Or whatever.

The other thing I understood was that most of the richest and oldest schools, Eton and the like, would take a greater financial hit if their charity status was revoked or altered, but would be virtually unaffected by VAT on fees. The reverse was the case for the 'poorer' independent schools.

[Avon]

VAT seems the fairest approach and long-overdue. I’ve no desire to bankroll the scions of MoD and Diplomatic Corps staff, nor the rash of Chinese (HK or otherwise) that take up a significant chunk of the private sector.

[LabrendaBestla]

That a good question. Let e do a bit of research and get back to you.

[loringa]

VAT seems the fairest approach and long-overdue. I’ve no desire to bankroll the scions of MoD and Diplomatic Corps staff, nor the rash of Chinese (HK or otherwise) that take up a significant chunk of the private sector.

You are not bankrolling anybody; average per-pupil funding in the maintained sector for 2023-24 is £7460 (UK Government website). Every independent school pupil who is eligible for a school place in the UK is already saving the country that much every year. In 2022–23, average private school fees across the UK were £15,200 in today’s prices (net of bursaries and scholarships) according to a report published by the Institute for Fiscal Studies in Jul 23. This would raise £3040 when VAT is imposed so the Government had better hope that fewer than 40% of eligible private school pupils don't end up back in the State sector or this rise won't raise a penny!

Those whose fees are largely covered by Continuity of Education Allowance (Armed Forces) and whatever the FCDO calls their allowance will have to see an increase in these allowances or the already dire crisis in retention will only get worse. Money in, money out but no net benefit to the exchequer.

I am afraid, this is 100% Politically motivated and designed to appeal to a particular sector of society to which it clearly does (Mr Redshaw). It's not going to raise much money though and will only exacerbate the crisis that exists in the state sector already. I doubt 40% of independent school pupils will return to the state sector but some certainly will, each at a cost of £7460 or whatever figure it has risen to this year.

[Katharine]

Thanks for that explanation, loringa, very thorough. As John worked for the British Council, we had the same conditions and terms of service as the FCO had then for our two sons. As far as I remember, it wasn’t full fees but most of them, and we also had their flights out to visit us in the school holidays twice a year paid.

It looks to be a vote catcher but possibly not fully thought through.

[MrEd]

There is now some chatter that the removal of the VAT exemption might 'backfire' in that it could mean that schools could reclaim otherwise unrecoverable VAT that they have paid on supplies (perhaps in the past 6 years) and so have a temporary bonanza.

There is also some chatter about member of HM Forces being exempt from paying VAT, how that might affect the various scholarships at CH would of course be another matter.

[Katharine]

There is also some chatter about member of HM Forces being exempt from paying VAT, how that might affect the various scholarships at CH would of course be another matter.

I wonder if that would extend to people like us, British Council and the Diplomatic Service?