The UK’s biggest and richest private schools are in line for substantial financial windfalls as a consequence of the government’s plan to impose VAT on their fees, according to official new guidance issued by tax authorities.
A document issued by HMRC on Thursday made clear that, once registered for VAT, independent schools will be able to claim back the tax they have paid on capital projects such as buildings and land acquisition completed over the past 10 years.
The money would be paid back progressively over the next decade, with the timing and amounts dependent on when the project was finished.
The fact that institutions such as Eton College and other elite private schools will be able to attain a net benefit from the change is causing tension within the independent sector, with those running smaller private schools saying it will widen the gap between them and the richest.
Snigger.
They say the money raised will help to pay for 6,500 new teachers in the state sector as well as free breakfast clubs in all primary schools.
Uhn, hunh…..
I’ll be interested to see if Eton and the rest actually receive their bribe for not opposing this nonsense.
My guess would be no.
Even if they had the money I’m amused by their optimism that there are 6,500 capable teachers ready to leap in. It’s similar to announcing plans to build 1.5 million new homes without wondering where all the builders are going to come from and realizing that they are going to charge double normal rates if you want them to start in the next 6 months.
It would be even worse for increasing the supply of doctors taking about 10 years from leaving school to being a qualified GP, and that is (falsely) assuming the training programs have been expanded sufficiently to accommodate the new trainees.
They say the money raised will help to pay for 6,500 new teachers in the state sector as well as free breakfast clubs in all primary schools.
Hold on. We have all the Channel sailors to pay for first, and I’m not convinced you’re going to be able to turn 6,500 of them into teachers fluent in English and properly conversant with and sympathetic to the indigenous culture.
andyf,
The bigger problem with housing is wildly overestimating the number of “greybelt” areas. One estate agent reckoned there was about enough land for 250K homes.
The answer for doctors is earlier specialisation. It’s a waste of time training people for a decade to do the routine stuff that GPs do. The only reason I go to a GP is to get the drugs I can’t buy or to get referred to a hospital doctor who do know some detailed stuff. They are an utter waste of money compared to things like having pharmacists doing the antibiotic thing, or just having people go to hospital, or having people who specialise in elder care.
So they’re going to hire new people and start ongoing programs, and pay for them forever, on the basis of receiving a one time rebate?
This seems unlikely. At the least it doesn’t make financial sense.
” free breakfast clubs in all primary schools.” so apart from having to pay for the parents child benefit/tax credits/universal benefit i’m now got to pay for their kids breakfast?
It is not land we have a shortage of, it it is a shortage of the pieces of paper that provides the legal authority for a house or other structure to exist. Something that is entirely under the control of the government. The construction industry is sized to build at the rate said pieces of paper are produced by the government.
Governments have been trying to boost teacher numbers for decades. A large number who qualify leave the profession within a few years. Nothing will change until something is done to increase retention (reduce burnout from stress and workload, sort classroom behavior issues, etc)
@andyf
“It’s similar to announcing plans to build 1.5 million new homes without wondering where all the builders are going to come from…”
It like a reverse Tower of Babel, you bring in all the different languages, and they will build it!
With the skills they bring with them, I hope you like adobe. Wonderful building material adobe, very Green.
. . . private schools are in line for substantial financial windfalls . . .
I believe there’s a tax for that.
“I believe there’s a tax for that.”
Aren’t many (most?) private schools charities? Which status isn’t going to change in the immediate future, so how would they be taxed on any VAT windfalls?
Jim – I was involved with the trading subsidiary of a national charity and I don’t think this type of arrangement was unusual. It allowed the seperation of the charitable activities from the grubby commercial side of things so this model could be true for some of the schools. Happy to be shot down in flames by more knowledgable contributors, though.
@TMB: what would be the point of an educational charity operating a school as an at arms length commercial operation? Wouldn’t that school then be subject to all the usual taxes (business rates, VAT, income/corporation taxes) that a charity is not, and thus missing the point of being a charity in the first place? The whole point of an educational charity is to provide education. Whereas the RSPB might want to operate some of its fund raising business activities (running a catalogue of items for sale for example) separate from its charitable aims (protecting birds). That makes perfect sense, because ‘running a catalogue’ has nothing to do with the ‘protecting birds’ aim, and all they want from the commercial side is profits to put towards their charitable aims. And if the commercial side goes t*ts up for some reason then by being separate its not going to drag the charity down with it.
The two private schools I attended are both charities, and the small private school I currently have some knowledge of is similarly. I have never heard of a educational charity operating a private school as a commercial non-charitable arms length entity.
It is clear that either Toby Helm is ignorant of how the VAT system works or he does not care. The so-called windfall is merely a reduction in the net payment to HMRC, not a net payment from HMRC to the school.
The clain further down that Eton will add 20% to its fees when the costs are increased by less than 20% verges on the libellous as an increase of 20% in previously-agreed fees just because VAT is levelled on *some* of Eton’s costs would be obtaining money under false pretences.
“claim back the tax they have paid on capital projects such as buildings and land acquisition completed over the past 10 years … The money would be paid back progressively over the next decade”
So VAT on building projects over the last 10 years can be claimed back over the next 10 years.
That’s only going to generate the claimed net repayment if they spend more a year (on average) on new buildings than they charge in fees. That seems unlikely,
. . . how would they be taxed on any VAT windfalls?
Jim, my comment wasn’t a serious one; just a joke that they’ll probably get them one way or another.
.
Both private schools near me spent big on extensions recently so I guess the state primary kids will go hungry in the mornings.
Jim: « I have never heard of a educational charity operating a private school as a commercial non-charitable arms length entity. »
The point, though, is whether a private school might not have a subsidiary that undertakes activities like building works, projects and maintenance that fall outside the educational activities of the charity.
If the private schools you attended were typical of the larger ones there would have been a great deal of activity and expense incurred that had nothing to do with teaching, boarding accommodation and catering.
When I said that I should be happy to concede that I might be mistaken I should perhaps have been explicit that it would have been interesting to hear from someone who had technical knowledge on the subject which might have saved you some effort and renewed reference to your own background.
“That’s only going to generate the claimed net repayment if they spend more a year (on average) on new buildings than they charge in fees. That seems unlikely,”
You’re forgetting they’ll be charging the parents VAT now, and get to keep whatever is offset by a refund. If the fee income was say £10m a year, a school that has done no building projects in the last 10 years will have to charge their customers £2m in VAT and pass all of that on to HMRC. Maybe less a little bit of ongoing VAT input reclaims, for stuff like services they buy in, and energy. Whereas an identical school just down the road that has done significant building investment over the last 10 years also gets to charge the customer 20% VAT, but only has to pay HMRC the balance between the £2m collected and the (say) £100k due on a refund. Ergo School 2 is £100k better off than its neighbour. Its has a windfall.
“The point, though, is whether a private school might not have a subsidiary that undertakes activities like building works, projects and maintenance that fall outside the educational activities of the charity.”
How is that relevant to the discussion of imposing VAT on private educational activity? If a charity has been operating a sideline business in grounds care, or building works, then they will be able to continue doing so after these changes. It won’t make any difference to their real problem – imposing VAT on the educational activities they are doing within the charity, which will now be taxed. Arms length operations would only be relevant IF a charity were operating a school on such terms, and if they were doing that they’d already be charging VAT on the fees, so wouldn’t be affected by the changes.