General Election 2024: The story so far

Two weeks in and election fatigue may already be setting in. For the time being, concrete policy announcements have been thin on the ground. Labour’s manifesto launch is being pencilled in for Thursday 13th June, and the Conservatives are likely to follow in a matter of days. This may give greater clarity, but here’s a rundown of everything we know already and how the experts think it could affect you.

VAT on school fees

While the vast majority of parents will be indifferent to this policy, for the 7% of people who send their children to private school, it is a major concern. School fees already routinely rise 6-7% a year and an extra 20% on top could put it out of reach for many families.

Labour hasn’t given a lot of detail on the policy, except to say that it will add VAT to fees ‘as soon as possible’. It can do this reasonably quickly. Law firm Farrer & Co points out that currently under VAT law in the UK, the provision of education by an “eligible body” (including independent schools) is an “exempt” supply for VAT purposes. “Theoretically, a new Labour government could pass a law at a time of its own choosing to change the definition of “eligible body” to omit independent schools.”

Parliament would have to be sitting to pass the law. That means Labour has a relatively limited window to get it through between Parliament sitting after the election and the summer recess. That makes a September start date difficult, but not impossible. If Labour is feeling kind, it may give schools time to implement the policy, but it may also believe it shows momentum to get it done early.

Schools do not have to pass the rise on and, as Farrer & Co point out, like any other business which makes VAT-taxable supplies, schools can offset the amount of VAT they have incurred on goods and services supplied to it (utility bills, repairs and maintenance costs or professionals’ fees). This may not be a lot – most of a school’s overheads are in its teaching staff, but it might drop it from, say, 20% to 15%

Jason Hollands, Managing Director at Bestinvest, says investors need to be aware that pay-in-advance schemes may not circumvent the tax:

There is a real risk that Labour could introduce changes that make VAT applicable when the service is delivered as opposed to when it is invoiced. Parents going down the pay-in-advance route need to understand that there is a real risk they will be landed with a VAT bill at a later date.

Jason HollandsManaging Director, Bestinvest

How to deal with it? There’s no magic bullet, says Hollands:

Cuts to household budgets, downsizing properties to release cash or pleading with affluent grandparents to help out and, in the process, reduce a potential inheritance tax bill by making lifetime gifts.

Jason HollandsManaging Director, Bestinvest

Pensions Lifetime Allowance