Tax experts have warned that the government could claw back VAT from private schools that collected over £500 million through fee-in-advance schemes, as parents sought to avoid the new 20% tax on school fees introduced in January. Analysis by the Daily Telegraph found that the UK's wealthiest private schools, including Winchester and Eton, took in the sum last year through upfront payments made before the VAT announcement.
Dan Neidle, a tax lawyer and founder of Tax Policy Associates, said many schools treated these schemes like deposits, deducting fees annually. He suggested that VAT might still apply at the point each year's fees are invoiced, meaning the schemes may not work from a VAT perspective. HMRC is expected to scrutinise the arrangements, potentially leading to legal battles with schools.
A government spokesperson stated that the Office for Budget Responsibility had already factored in the increased use of pre-payment schemes in its revenue forecasts. Removing tax breaks for private schools is expected to raise £1.8 billion a year by 2029-30, funding 6,500 new teachers and improving state school standards. The government confirmed that fee-in-advance schemes could be liable to VAT depending on how they operate, particularly if the tax point—when fees are billed—is not clearly defined.
Tax lawyers noted that pre-payments made after 29 July 2024, when the Treasury formally announced the VAT addition, are unlikely to avoid HMRC scrutiny. HMRC typically takes one to four years to begin investigations, leaving parents and schools in a period of legal uncertainty. Brighton College received £50 million in advance fees last year, while Eton took in nearly £53 million, both charging about £63,000 annually for boarding pupils including VAT.
