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Labour explored a move to impose sales tax retroactively on private school fees to stop parents avoiding the levy by paying for years of education upfront, according to people briefed on internal discussions.
Some wealthier parents are paying several years of school fees in advance to get ahead of Sir Keir Starmer’s plan to impose 20 per cent VAT on private education, headmasters told the Financial Times.
Several tax experts have identified this as one of the only loopholes available to parents hoping to avoid paying significantly higher fees for their children’s education if Labour wins the election expected this year.
Starmer first announced in 2021 that Labour would strip private schools of exemptions from paying VAT and also impose business rates. Labour has said the measures would raise £1.5bn to fund state schools.
The policy has led to a backlash from private schools, which fear the moves will make fees unaffordable for large swaths of their students and has questioned the ethics of taxing children’s education.
A recent Ipsos poll found that 57 per cent of Brits supported the proposal, but some parents with children at private school have responded by paying upfront to avoid being caught by the measure.
Nick Pietrek, headmaster of Stafford Grammar school in Staffordshire, told the FT he had seen a “significant uptick” in parents paying several years of fees in advance to more than a dozen in 2023.
Simon Tyrrell, co-proprietor of Wychwood School in Oxfordshire, said parents were discussing trying to pay as many years as they could afford in advance, although he noted only a small number would be able to do so.
Chris McAllister, headmaster of Tettenhall College in Wolverhampton, said the “advice we’ve had . . . is that a retrospective tax would be unlikely as long as the payments were made in advance of the election.
“We’d never legitimise tax evasion but legitimate tax avoidance would be permitted,” he said.
Labour party officials have discussed additional legislation to ensure that the VAT is applied to education at the time it is delivered regardless of when it was paid for, according to the people familiar with the matter.
“It’s not about when you pay it but when the services are supplied . . . so for teaching, that would be when the teaching happens,” said one of the people.
Labour did not comment.
Governments often use “anti-forestalling” measures when changing tax policy to cover the period between an official announcement of a tax change and its later imposition.
But an attempt by Labour if it enters government to include the period before the party was in office would be more controversial.
While tax experts said a “retroactive” tax was technically feasible and had some precedent, it would also be difficult and costly to implement because it would require schools to chase up parents of children who may have left.
Richard Asquith, founder of VATCalc, said the small number of people who pay fees in advance, coupled with the difficulty in recouping costs after the fact, mean it would only generate a few hundred million in tax revenues. He said Labour would likely conclude such a move was not worthwhile.
Applying tax measures retrospectively was “not without precedent” but remained “very tricky”, added Sir Edward Troup, a former executive chair of HM Revenue & Customs.
Some private school figures dismissed the loophole as a distraction from the broader impact of Labour’s proposals.
“The number of parents who can afford to use fees in advance schemes is very small and any political focus on this niche issue is a clear attempt to exploit stereotypes about independent schools,” said David Woodgate, head of the Independent Schools’ Bursars Association.
Rod Jackson, principal of Gosfield School in Essex, an independent coeducational school that serves children with roughly 330 pupils, said that while they offer such a scheme, “the vast majority of our families are not in a position to pay fees in advance by a year or more”.