British universities 'could be forced to tax students'

Teenagers going to university in Britain could fall into a VAT trap due to Labour ’s “rush” to introduce the sales tax on independent school fees, tax experts have told The National . Vague wording of the current draft VAT legislation means that fees paid by those under the age of 19 could be liable for the charge, they say. All education in the UK is currently exempt from the 20 per cent sales tax. However, Labour wants to change that by adding VAT on fees paid to independent schools , from January 2025. All other educational institutions, including nurseries and universities, are meant to be unaffected. But experts say the definition of a private school in the current draft legislation text leaves the possibility open that higher education students may also be liable for the charge . Although VAT is technically a tax on the consumer, it is paid by businesses to the government, based on charges and fees received. It is unlikely that universities would be able to soak up the addition of VAT, given that 40 per cent face making a loss this year, according to estimates. The draft legislation defines an independent school as a fee-paying “institution at which full-time education is provided for persons over compulsory school age but under 19 and which is principally concerned with providing education suitable to the requirements of such persons (for example, a sixth form college)”. A spokesman for HM Treasury told The National the government “had no intention” of adding VAT to university fees. “University education is not captured by the draft legislation and we have no intention of bringing universities into VAT,” he said. However, once the policy becomes law, it is up to the tax authority – HM Revenue and Customs – not the government, to interpret and enforce VAT legislation. Some have suggested that universities could be caught by the definition regardless, due to the fact that most students are 18 when they start. “The [definition] on the face of it, unintentionally, would appear to catch universities and colleges which receive fees from students under the age of 19,” John Rainsford, VAT director at Evelyn Partners, told The National . The issue, a consequence of the government’s “rush” to introduce the tax, proves how difficult it is to introduce VAT legislation, he said. “That’s why most governments do not change the VAT legislation, because it always comes up with these anomalies. It seems to be a consequence of the rush to get the legislation pushed through at a much, much earlier date than anyone had envisaged,” added Mr Rainsford. When the legislation is finalised on October 30, it must make absolutely clear that it does not include universities and further education colleges, he said. “You can’t have a mismatch,” he added. The British Universities Finance Directors Group, which represents finance staff at 180 universities, has reportedly written to the Treasury to highlight its concerns. The warning comes following a call from British universities to introduce the first fee increase in a generation in order to help struggling institutions, amid claims that 40 per cent face making a loss this year. Concerns about the policy were also recently raised by the Association of School and College Leaders, which warned in its response to the Treasury's consultation on the policy that introducing the sales tax in the middle of the school year could lead schools to make unbudgeted staffing changes, resulting in job cuts. It has called on the Treasury to delay the implementation until September. The change would make the UK the only current western country, aside from New Zealand , to tax education. The only real-world example of a country latterly introducing VAT to private schools is Greece , which imposed a 23 per cent tax on school fees in 2015, only to later roll it back following the closure of smaller schools and pressure building up on the state sector. Around 600,000 children – about 6 per cent of UK pupils – are currently educated privately. The policy is predicted to result in an as-yet unknown number of children being removed from independent schools and placed in the state sector, with estimates ranging from 3 per cent to more than 20 per cent. Critics of the policy point out that VAT is a tax on the consumer, not the business, adding that staffing costs account for more than 75 per cent of independent schools’ budgets, leaving them little headroom to make efficiency savings.

British universities 'could be forced to tax students'

Labour's plans to tax independent schools would see more institutions unintentionally subject to the 20 per cent sales tax