A new government: manifesto pledges for tax

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VAT on School Fees

The introduction of VAT on private school fees, a key and much debated Labour manifesto pledge, now moves a step closer.

Although Labour are expected to include this measure in their first budget, new Chancellor Rachael Reeves suggested on the campaign trail that this would not come into force until at least 2025 and would not apply retrospectively i.e. not generally before the measure is enacted in law. This should protect genuine short prepayments, and given the myriad of potential issues with an introduction mid-school year, it would be hoped that any new legislation will be phased in to start at the very earliest from the 2025/2026 school year.

Beware of aggressive or artificial arrangements

Importantly, Labour have not ruled out ‘anti-forestalling’ legislation, not least due to concerns around the widespread implementation of ‘aggressive’ and/or artificial arrangements to ‘avoid’ the change.

The use of anti-forestalling legislation is generally to deal with transactions entered into in the interim between announcement and before measures legally take effect to prevent taxpayers from circumventing the changes.  It is therefore really important that professional advice is sought before entering into any arrangements to reduce a liability for VAT on school fees. If it sounds too good to be true, unfortunately it generally is.

Investment in HMRC

Now that Labour are in government hopefully the cheque is already in the post for the much welcomed £855m additional funding for HMRC to tackle avoidance, increase staffing headcount and investment in technology. 

Whilst welcome, this investment falls some margin away from the funding actually needed by HMRC, and is in reality a sticking plaster, as was the last significant additional investment in HMRC of £900 million to tackle tax avoidance, evasion and fraud announced by the Conservative and Liberal Democrat coalition government all the way back in 2010. 

It is fair to say HMRC service levels have taken a steep decline over recent years and more investment is sorely needed.  It is hoped this money will be wisely invested in upskilling and recruiting experienced tax professionals who can help now and not on more ‘white elephant’ IT projects.  At the very least it is hoped this will reduce waiting times on the phone to speak to HMRC and for written responses - but that may be too optimistic!