Some insiders claim that if Labour wins the next election, it could start charging VAT on fees for private schools and boarding schools in England. This could worry some parents and their tax advisers.
The VAT exemption for private schools was to be abolished by the Labour leader. A 20% increase in public school fees could raise an extra £1.5 billion. State education funding would be the beneficiary of this extra money.
However, two Labour MPs told the Financial Times that boarding schools would be subject to VAT. One of them explained that boarding was linked to mainstream education provision.
Private schools are trying to attract lower-cost international students to mitigate the impact of a forthcoming sales tax increase. They are also looking at ways to help parents pay several years of tuition fees in advance before the proposed policy comes into effect.
In addition, Labour has made it clear that it will work to prevent schools and parents from evading the tuition fee tax. At least one overseas school is now offering reduced prices to UK parents in response to concerns about future increases in private tuition fees in the UK.
For the period of study of a British pupil between Years 9 and 13, i.e. between the ages of 13 and 18, British parents can pay a flat fee of £28,000 a year to Epsom College in Malaysia, a boarding school which is a sister school to Epsom College in Surrey.
Our research suggests that many British parents would have to look at other types of schools and many would have to consider overseas schools as well.
Tax Expert's Opinion on Education Fees and VAT
The distinction between boarding fees and public school tuition has already been criticised by Dan Needle, a tax expert at the Tax Policy Research Institute.
Mr Neidle drew attention to the fact that the courts have previously ruled that in situations involving the provision of higher education, a single economic transaction cannot be artificially divided. Neidle said that 'unbundling' tuition fees in response to the VAT change could run into difficulties, including potential charges of tax evasion.
Although party insiders said they thought such rules might not be necessary, he suggested that a Labour government might consider introducing anti-tax avoidance rules to address the issue. In their view, boarding and education fees are clearly linked and part of the same transaction.