The recent government decision to impose VAT on the fees of private schools in the UK has sparked controversy, especially among the elite institutions like Eton College. According to the new guidance issued by tax authorities, once registered for VAT, these schools will be able to claim back the tax paid on capital projects completed over the past decade.
This means that schools like Eton will receive a substantial financial windfall, as they can claim back VAT on operating costs and capital projects. The smaller, less wealthy private schools, on the other hand, will likely have to use any money they receive to keep fees down for parents who may not be as affluent. This has led to concerns that the wealth gap between elite schools and smaller institutions will widen even further.
Despite calls for a delay in implementing the VAT charges to give schools more time to adapt, the government is moving forward with the plan starting from 1 January next year. The revenue generated from this move is intended to fund 6,500 new teachers in the state sector and provide free breakfast clubs in primary schools.
Rudolf Eliott Lockhart, head of the Independent Schools Association, expressed concerns that the policy will have a disproportionate impact on smaller independent schools that are not oversubscribed. He worries that a drop in demand due to VAT charges could push these schools into closure, especially since they may not have undertaken significant capital spending in the past decade to benefit from VAT reclaims.
Mairéad Warren de Búrca, managing director at Alvarez & Marsal Tax LLP, explained that schools can now seek to recover VAT on past capital expenditure over the next decade, providing some financial relief. David Woodgate, chief executive of the Independent Schools’ Bursars Association, highlighted the need for more time before the new system is implemented to ensure compliance and clarity for all parties involved.
In conclusion, the introduction of VAT on private school fees has raised concerns about the impact on smaller independent schools and the widening wealth gap within the sector. While elite schools like Eton stand to benefit from VAT reclaims on capital projects, smaller schools may struggle to keep fees down for less affluent parents. The debate continues on whether a more nuanced policy that considers the diversity of the independent school sector is needed to address the challenges posed by the VAT imposition.
