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A number of private schools across the UK have started promoting schemes that would allow parents to pay fees for several years in advance, apparently in a bid to avoid Labour’s plan to tax independent schools when they next vote wins.
Labor leader Sir Keir Starmer said in 2021 that if he came to power he would end a long-standing VAT exemption for private schools, raising costs by 20 percent and raising up to £1.5 billion to fund state schools, according to the Newspaper estimates of the party.
Many independent schools in the UK already offer some form of prepayment scheme, including a small discount for several terms or years paid in advance. However, discount rates were not particularly attractive and usage tended to be low.
At least eight small and lesser-known private schools appear to have either adopted a new “fee-advance” plan or begun promoting their programs much more prominently.
But more established schools have avoided introducing new systems or widely publicizing existing ones on the grounds that they would have to be charged taxes on the payments at a later date, according to people briefed on their deliberations.
Solihull School in the West Midlands has started offering a new advance payment scheme “taking into account the current economic environment”. A brochure published this year said that VAT was not currently included in the fees, but that this could be the case in the future depending on changes in the law.
Boundary Oak School in Portsmouth has started promoting a fee prepayment scheme, but it did not appear on its website’s fees page until 2023, according to previous website screenshots.
It says: “Should a future government introduce VAT on fees, please note that the tax point will be the earliest of two dates: the payment date or the invoice date. Therefore, any fees paid before a VAT change will not be subject to VAT.”
The Labor Party is expected to introduce some form of “anti-forestling” measures when it changes tax policy to cover the period between the official announcement of a tax change and its introduction.
But retroactive legislation could also be introduced that would include payments made before the party came to power towards the provision of education from April 2025.
There is precedent for this type of retroactive legislation. In 2019, the so-called loan levy came into force, allowing HM Revenue & Customs to charge tax for up to 20 years on income earned under a controversial scheme whereby employees used loans rather than loans to avoid tax were paid via a salary. Several court challenges to the law failed.
Even if Labor did not introduce this type of legislation, tax experts say HMRC could challenge some prepayment schemes on the grounds that they do not actually pay fees in advance; Rather, they deposit an amount with the school for later payment.
Accounting firm Haysmacintyre published a briefing last year saying that companies actively marketing an advance payment scheme to avoid paying tax will be challenged by HMRC.
Dan Neidle, a tax expert at Tax Policy Associates who has worked on advance payment schemes, said he was “concerned that parents and schools are not recognizing that these schemes are at risk of challenge by HMRC, which could result in unexpectedly high VAT rates .” Accusations, years after the event”.
Neidle added: “If Labor plans to legislate retroactively, it should announce it now before the situation spirals out of control.”
said Julie Robinson, chief executive of the Independent Schools Council “Fee prepayment schemes are entirely legitimate and have been used over the years for a variety of reasons – for example, where an inheritance has been left to a family.”
She said schools have been advised that advance payments should not be marketed as a tax loophole.
Charles Fillingham, Solihull’s executive director, said the program was set up “in response to requests from parents”, adding that it had “taken legal advice and our program meets all the requirements of UK law”.
Boundary Oak did not respond to a request for comment.