A leading VAT expert is calling on private schools to review the accounting treatment of pre-paid school fees in order to avoid huge tax charges at a later date.

It follows news of Labour’s plan for anti-forestalling measures on proposed private school VAT legislation. This would see the party recoup VAT on pre-paid fees for education that takes place after the VAT comes into effect.

Now, Daphne Hemingway, VAT Director at Jerroms Miller Specialist Tax is urging schools to remodel their finances and reassess the VAT accounting for advance payment schemes, as she believes many of these schemes are not sufficiently robust. She says it’s crucial for schools to act, as parents will expect that existing contracts to protect the VAT exemption on prepayments:

“There’s lots of speculation that VAT may be chargeable regardless of when the legislation is enacted. Without action, this could leave schools facing significant tax bills and could even face closure as a result of relatively simple VAT accounting errors. If the relevant pupils have left the school when the rules are applied, parents may no longer be contactable to clawback the additional 20%.

What’s more, not all parents can afford a rise in fees so pupils could be withdrawn from private education, creating a further gap in finances. Advance payments will therefore be crucial. VAT law is rarely clear or logical, and the correct accounting treatment can override the terms and conditions of several fees in advance schemes. Schools will be able to recover VAT on historic and ongoing expenditure and may well be able to reduce fees and thereby pass on less than 20%.”