Parents have paid up to eight years of school fees in advance ahead of Labour’s win on Thursday but VAT experts believe this could still be taxed!
In an attempt to bypass the 20% VAT charges which could come in from September 2025, parents and grandparents have paid at least £100m up front that could still be subject to VAT charges.
It is assumed by many this will not be the case as Chancellor Rachel Reeves said the VAT fees would not be charged retrospectively, but tax expert Daphne Hemingway, VAT director at accountancy firm Jerroms Miller, has said these fees may be subject to VAT ‘due to nuances in tax point rules’.
Following conversations with a raft of private school clients, Hemingway estimated that up to £100m of school fees have been paid in advance.
Hemingway, VAT director at Jerroms Miller said: ‘Schools have accrued millions in prepayments on the basis that these fees will remain VAT exempt when the law changes. However, without robust contracts, prepayments may not be protected.
‘If school contracts are ineffective — and I’ve seen many that are — then the point at which VAT is chargeable, is the date the services are performed.
‘VAT may be chargeable on all prepayments regardless of when the legislation is enacted’, warned Hemingway. This could mean schools are left with significant VAT bills, and even facing ‘closure as a result of relatively simple VAT accounting errors’.
This is because if pupils have left the school by the time the VAT becomes chargeable then it may be impossible to chase them up.
Hemingway added: ‘Not all parents can afford a rise in fees so pupils could be withdrawn from private education, creating a further gap in finances.
‘Advance payments will therefore be crucial. VAT law is rarely clear or logical, and the correct accounting treatment can override the terms and conditions of several fees in advance schemes.’
Credit to: Will Drysdale | Reporter, Accountancy Daily
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