Should I pay school fees upfront - is there a benefit? Post Reply

[sande]

I was wondering with inflation is there a benefit, outside of the small school discount, of paying the fees upfront. 

[BenandJerry]

I would suggest that it isn't a good idea but that is mostly because I am quite risk averse and wouldn't want to pass that cash over not knowing what else could be coming down the line. Separately, I do think that although most schools work out for most children it isn't always the case and if you have paid upfront you might be tempted to try and get something to work that isn't ideal. 

[Just_T]

You always have to give an entire term's notice before withdrawing your child from a school and in this case, you would then get the remainder of your fees refunded so that part is not a risk. But when they raise tuition, as they will every year but especially now with inflation/energy, you will still be charged the difference so not sure what it really saves you. We did it but I feel like it was just our way of alleviating the psychological burden of coming up with that much money every term.

[MonkeySee]

Oh that's interesting. I always thought it was a way to "lock in" the current fees. Can I ask how big a discount schools provide?

[supergirl]

I personally think it is a great idea. Thats what we are doing in our school.

We get 10% sibling discount and an extra 5% for paying the year for 2 upfront. For us it achieves 2 things: small reduction in the fees but good enough to take and peace of mind that the year is sorted.
It also locks the fees actually.

We are risk averse same for our morgage that is fixed so yes it is parting with cash (school fees) and a slightly higher interest rate (mortgage) but it s not too much and it means that we have know what our outgoings are.

[Greyskies]

Fees paid in advance are outside your estate for IHT purposes. Important - particularly if grand parents are paying. 

[Just_T]

Sorry I didn’t see that you had asked a question so I’m sure you’ve already made a decision about what to do but just to say that my girls’ school does not offer a sibling discount and the discount for paying up front is very minimal - like 5%. You just ask the finance person at your school about it and they work out how much you’d save.

[SW11 Resident]

Should a new government come in in a couple of years and slap VAT on private school fees, would I be liable for this VAT if I had paid the fees upfront now does anyone know?

Thanks

[Lepresidente]

No . See answer below from a tax expert on this very topic !

When does VAT fall due on a transaction?

For a supply of education, the point at which VAT falls due will usually be the date that the school fees are paid. This is because the supplies are continuous in nature throughout the period of schooling and as the supply is currently VAT exempt - no ‘VAT invoice’ is raised.

How can this rule assist independent schools?

As a result of the above, the rate of VAT applicable is the rate in place at the time that the payment has been made. So, if a parent was to pay £100,000 today for five years’ school fees (or before any formal announcement that VAT is being applied to school fees), that £100,000 would be treated as VAT exempt.

If the government changed the VAT liability applicable to school fees it could only do so from a future date and, the £100,000 would therefore be protected from any VAT charge. However, any payments made after the announcement could be subject to VAT, as HMRC would usually introduce ‘anti-forestalling’ legislation to prevent pre-payment VAT planning.

[SW11 Resident]

Thank you Lepresidente, that answers my query perfectly and very good to know!