The Treasury has faced questions about its impartiality after it claimed that VAT exemption on private school fees, which will end in 2025, amounted to a “tax break”.
Several Tory MPs have argued that VAT exemptions are not tax breaks and have accused the Treasury of politicising the narrative.
However, the Government has frequently referred to its decision to add VAT to private school fees as a “tax break”, and multiple departments have used this phrase.
Here is everything you need to know about the Treasury’s claims on private school VAT:
What has the Treasury said about private school VAT?
On 29 December, the department’s official account posted on X that the “VAT break for private school fees will come to an end” on 1 January, as previously announced by the Government.
It added that this would help with “enabling better investment in state education and helping to recruit 6,500 new teachers”.
The X post linked to a Department for Education blog that outlined the planned changes to VAT charges on private school fees.
The page repeats the Government’s previous claims that the change, first revealed by The i Paper, would raise £1.7bn a year to “go towards the public finances and help improve education and outcomes for young people”.
The blog also echoes the Treasury’s claim that the Government had “ended tax breaks on private schools”.
Other departments have also referenced the claim that private schools were given a tax break on VAT.
An HMRC policy paper published in November, which was not referenced by the original Treasury post on X, also uses the claim that the Government is “removing the VAT exemption for education and boarding services provided by private schools”.
How does VAT on private schools work?
In the UK, value-added tax (VAT) is levied on the purchase of certain goods and services and is typically charged at the standard rate of 20 per cent.
VAT has been charged in the UK since 1973, but has never been applied to educational services.
Some goods, such as children’s clothing and food, are zero-rated, meaning businesses do not charge VAT on the products, but can reclaim VAT on expenses. This keeps them within the VAT system, allowing input VAT recovery.
Other goods and services, such as education and financial services, are classified as VAT-exempt. This means that the business cannot charge VAT or reclaim input VAT, leading to higher operational costs.
The key difference between zero-rated VAT and exemption is that the latter remains within the VAT system, while the former falls outside it.
The supply of educational services is exempt from VAT, meaning that private schools do not levy the tax on the school fees charged to parents, but also cannot recoup VAT on other expenses.
The Labour Party election manifesto specifically stated that it would remove “the VAT exemption on private school fees” when outlining its plans to add VAT to private school fees.
This exemption will end on 1 January, and private schools will be required to charge VAT on the educational services they provide.
Do private schools currently get a tax break?
A tax break is a broad term referring to any measure that reduces the amount of tax owed, such as deductions, credits, allowances, or reliefs.
The phrase is usually applied to measures involving taxes, such as income and capital gains taxes, which are aimed at incentivising behaviours, supporting industries, or easing financial burdens.
For example, research and development tax relief reduces corporations’ tax liabilities to encourage investment and innovation.
VAT exemption, however, is specific to the VAT system. Exempt goods or services, such as education, are not subject to VAT, and businesses supplying them cannot reclaim input VAT.
Unlike tax breaks, VAT exemption removes specific activities from the VAT framework entirely.
In other words, a tax break usually applies to a measure based on an existing tax that targets a particular industry rather than an industry to which no tax is applied.
What are critics saying about the Treasury’s claims?
Several Conservative MPs have raised strong concerns about the Treasury’s claims that the Government is ending the “tax break” on private schools.
Shadow foreign secretary Priti Patel was among those criticising the Treasury and suggested that the department was adopting a political line when discussing the policy.
She argued that the post breaches the Civil Service Code, adding: “This tweet shows that [HM Treasury] has lost its impartiality and objectivity and is now a mouthpiece for Britain’s left-wing government while you now tax the education of children”.
Shadow Commons leader Jesse Norman also responded to the post on X, writing: “The absence of a charge is not a tax break, and any money it may raise has not been hypothecated for education. This is a highly political tweet at odds with the proper neutrality of [HM Treasury] and the civil service.”
Does the claim breach civil service impartiality?
The Civil Service Code requires that all civil servants uphold the key values of integrity, honesty, objectivity, and impartiality.
Under this Code, civil services must ensure evidence-based decision-making free from bias and remain politically neutral in their work.
For example, civil servants are not able to publish political attack lines against other parties when outlining policy decisions.
However, there is some precedent for Whitehall departments reproducing some of the political language used by the Government of the day.
On the day the general election was called, some questions were raised when the official Treasury account on X made a post about inflation falling to 2.3 per cent with the phrase: “Let’s stick to the plan.”
Prime Minister Rishi Sunak and the Conservative Party frequently used this phrase before the election when discussing their economic plans.
The i Paper understands messages such as those shared by the Treasury under both Labour and the Conservatives typically have to be cleared by departmental special advisors and No 10, meaning they have influence over the wording used.
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