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General Election: VAT Perspectives – Labour Party

by Berthold Bauer on July 2, 2024

On 22nd May 2024, Prime Minister Rishi Sunak announced a general election to be held 4th July 2024, prompting speculation about tax measures each party might adopt.

This article seeks to pull out the VAT policies as contained in key party manifestos, and touches on the on rationale, impacts and uncertainties these bring. For avoidance of doubt, this article does not seek to comment on resources beyond the manifestos, e.g. interviews, debates, statements from candidates in isolation, etc.

Labour Party

Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT

  • Labour suggest in the same section that they will achieve greater tax revenues through closing other loopholes touching on non-doms, offshore trusts, capital gains taxes, and clamping down on tax avoidance.
  • Interestingly, the same section this appears also notes that Labour will, ‘increase registration and reporting requirements’. Whilst not elaborated upon in the manifesto, this could have implications for VAT such as lowering the registration threshold, stricter compliance legislation and enhanced reporting requirements in the name of reducing tax avoidance.

Labour will end the VAT exemption and business rates relief for private schools to invest in our state schools

  • Labour further claim that this will generate £1.51m in additional revenue, which will directly fund a number of policies in the education space.
  • How and when this will be implemented exactly is not known, and there are various rumours and opinions out there on this, but the fact is that much of this is not currently set in stone and is anyone’s guess.

 

  • In any case though, private schools need to be understanding what the impact could be to their financial position if brought within the scope of VAT, if not already doing so, and should be considering the following points as a minimum:
    • Are existing systems setup to manage adding VAT to existing processes? e.g. MTD requirements such as registering invoices as Gross/Net/VAT and a digital links from requisition to payment, can costs be identified as directly attributable to tuition fees (standard rated) versus other income streams unlikely to have VAT on them, e.g. nursery fees?
    • Are records available to revisit VAT incurred on capital expenditure in the last 10 years for potential reclaim under the Capital Goods Scheme?
    • Do current contract terms make clear what supplies are distinct and independent of tuition fees themselves and which are wrapped up in this?
    • What appetite is there to transfer existing services and assets into subsidiaries or third parties?
    • If considering cost cutting measures or new income streams to limit the financial impact, will VAT be applicable?

Although there are still many uncertainties around how this policy will be implemented and the timing of it, schools need to get a handle on the impacts of VAT accounting now, rather than leaving this too late to efficiently manage these additional obligations competently.

We are assisting a number of schools in this space ranging from those more comfortable in their reserves to those which are already struggling to break even since Brexit and Covid. If you would like get in contact about the impacts of this policy in particular on your organisation, please reach out to us here.

 

See other party VAT perspectives:
Conservative Party
Liberal Democrats
Green Party
Reform UK

 

We have been in conversation with many organisations on the potential impacts these policies may have on them and their viability. If this is something you would like to discuss further, then please contact us via our free VAT helpline and a consultant will reach out to you to discuss.

Berthold BauerGeneral Election: VAT Perspectives – Labour Party

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