Labor will close a loophole in VAT legislation on private school fees

Labor has announced plans to prevent parents from paying private school fees in advance, in a bid to avoid the impending VAT rise if the party wins the July 4 general election.

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

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

This move aims to close a loophole where some schools encourage parents to pay several years’ worth of fees in advance, often offering discounts of up to 5%. Labour’s approach is modeled on 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 VAT implementation would depend on the parliamentary process, but reiterated the party’s commitment to move quickly. She emphasized that private schools have had ample time to prepare for these changes.

Labor believes the move could raise 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 things.

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

Labour’s determination to close this loophole reflects a wider effort to ensure that tax policy benefits the wider public, particularly by increasing state education opportunities.