Labour to Close VAT Loophole on Private School Fees

Labour has announced plans to prevent parents from pre-paying private school fees in an attempt to dodge the forthcoming VAT increase if the party wins the general election on July 4.

Senior Labour sources confirmed to The Telegraph that anti-forestalling legislation will be introduced to stop pre-payments on school fees before the VAT comes into effect.

Rachel Reeves, Labour’s shadow chancellor, stated that the plan to introduce a 20% VAT on private school fees will be included in her first budget, anticipated in September if Labour wins the election. Although the actual VAT is expected to be implemented by September next year, the anti-forestalling legislation would ensure that any fees paid in advance for education provided after the VAT comes into force will still be subject to the tax.

This move aims to close a loophole where some schools encourage parents to pay several years’ fees upfront, often offering discounts as much as 5%. Labour’s approach is modeled after a similar tax strategy used by former Chancellor George Osborne in 2010.

Bridget Phillipson, Labour’s shadow education secretary, noted that the exact timing of the VAT implementation depends on the parliamentary process but reiterated the party’s commitment to act swiftly. She emphasized that private schools have had ample time to prepare for these changes.

Labour believes this measure could generate up to £1.7 billion, which would be invested in state education to recruit 6,500 teachers, 8,500 mental health specialists, and 1,000 careers advisers, among other initiatives.

While some private schools have updated their policies to warn parents about the potential for future VAT charges, tax experts like Mike Warburton caution that the new legislation could prove complex for both schools and parents.

Labour’s determination to close this loophole reflects a broader effort to ensure that tax policies benefit the wider public, particularly in enhancing state education opportunities.

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