Page 6 - Independent Schools Magazine
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The vexing question of VAT on fees
As reported in this magazine’s April edition, the recent Labour party idea to impose VAT on school fees do not, on the face of it, add up. Henry Briggs, senior partner at the Birmingham of ce of chartered accountants Haines Watts, a former school governor with expertise in advising and supporting both independent and state schools, comments on the effects of VAT on schools’ income...
VAT is never as simple as it seems. In the world of education, fee-
charging schools are ‘exempt’ from VAT, whereas state funded ones are ‘outside the scope’ of VAT.
If fee-paying schools were to lose their exempt status, then registration for VAT would mean they can recover VAT on their inputs. Most notably this would be on capital expenditure, so there will be less of a net gain to the Treasury.
The elasticity of demand is such that with a 20% rise in fees due
to VAT, there would undoubtedly be a contraction of the fee-paying sector, though this would be time lagged as pupils  nish whatever stage they are at before moving schools. The cost of  nding a state place for these pupils is likely to signi cantly offset the bene t of the extra net tax collected. Fee-paying schools would also undoubtedly investigate areas
in which they might be able to replace some of this lost income from other sources or activities. As a result of the facilities ‘arms race’ in recent decades, many schools have signi cant assets that may be being underutilised and could be put to better
economic use. The drive to ful l successive ‘public bene t’ tests and calls to support the state education sector with their shared use would, in all likelihood, be abandoned in the light of such an attack on the private schools. Theatres, swimming pools,
sports halls and other common areas that could be used out of school hours for paying clubs or functions, could be major contributors to income.
Other uses of school assets could include adult evening education classes, such as IT or language schools. There may be a ready ‘starter’ market in the parent base. Breakfast clubs and other after-hours societies for families needing day-long care in day schools, could be set up. Holiday clubs or summer courses are
run by many boarding schools but this could well be extended and the same done for local catchment, or in partnership with local residential providers, by day schools too.
Bringing about these business models could be looked into
by canvassing existing parents’ views. It will be in their interests to increase school income and reduce the pressure on fees. Operationally, staff can be
consulted and in some cases activities outsourced to them, thereby offering them the opportunity to enhance their incomes.
I would start with the economics and business studies department and ask for their input to the business plan.
One irony is how this additional income is treated in a charitable entity, and for some of these activities, VAT may well already apply. Structuring such activities correctly is very important and should not be done without good advice.
It is a second irony that the Labour party has suggested the imposition of VAT on fees will pay for free school meals in the state sector. The provision of school meals by providers, other than
the schools themselves (and many primaries in particular do not have the facilities) is VAT-able. State schools and academies supplying school meals to neighbouring state schools have to charge VAT on them.
The other aspect to the VAT suggestion is the law of unintended consequences.
Schools will rightly do all they
can to protect their survival. My
guess is that the independent sector would look to expand their overseas operations where costs would be lower. It makes more economic sense for some families to send their children abroad on cheap  ights for an ‘British’ styled education. This would turn around a sector that currently earns valuable foreign currency for the UK into one that is draining UK earned incomes
by their being spent abroad, thus further damaging our already challenged balance of payments and employment.
Just as VAT is never simple, nor are the economics of the educational sector. Schools and parents who value choice would be much better persuaded, by the improvement
of state education, to compete with the world-class private school sector in the UK, than the blunt instrument of applying taxes on such a contributor to the overall economy.
The net gain to the Treasury is likely to be seriously diluted from the raw data but one thing is certain, an already hard pressed
HM Revenue and Customs will have a much greater and complicated burden imposed on them.
One can only conclude that the idea has not been thought through.
Powered ahead
Exeter School is celebrating winning a prestigious national award at the F1 in Schools Final.
Exeter School’s most successful F1 in Schools team, Vulcan, competed in the Development Class National Final at Silverstone, where they were awarded the Innovative Thinking Award.
The F1 in Schools competition challenges pupils aged 9-19 to build, test and race a model car they have designed from scratch on
6 Independent Schools Magazine
a multitude of industry standard computer programs.
After seven weeks of preparation following the regional  nal in February, Dr Adrian Rowland and Mr Martin Rose accompanied the team of Year 10 pupils to Silverstone. “The prize ceremony was followed as
last year by a lap of the track in the school minibus, led by the ex-Stig Ben Collins in a very shiny Ferrari,” said Dr Rowland.
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