The Institute for Fiscal Studies (IFS) estimates that implementing VAT on private schools could generate annual revenues of £1.6 billion, according to Labour, who propose using these funds to support an additional 6,500 teachers.

Many parents have inquired about strategies to mitigate the potential 20% increase in private school fees. However, the actual cost increase for parents may not equate to a full 20% due to schools reclaiming input tax on overheads and property maintenance. This could offset a lower cost base against slightly higher term fees.

One potential approach involves pre-paying term fees in advance, often covering multiple years rather than paying each term individually. This tactic hinges on accelerating the “tax point” for the service provided. There is a possibility of anti-forestalling legislation taking effect from the announcement date. Labour has assured that any legislation will not be retroactive, although the efficacy of such strategies remains uncertain.

“Tax point for VAT”

The time of supply is determined by the earliest of three events:
– The actual date when the supply is made, known as the basic tax point.
– The date when a tax invoice is issued for the supply.
– The date when payment is received for the supply.

There are specific considerations when applying this rule, including the 14-day rule and special provisions for certain types of supplies.

Under the 14-day rule, if a VAT invoice is issued within 14 days of the basic tax point, the invoice date overrides the basic tax point for determining the time of supply. The invoice must be a valid VAT invoice issued by the supplier to their customer.

It is possible to opt out of the 14-day rule, but this requires written notification to HMRC.