Surviving the School Fees VAT Raid

Who isn’t? 

There is not much we can do about assisting the parents; they have to come to their own very tough decisions and if they withdraw their children, hope there is a State School nearby which provides high quality education and even more importantly, have places available?? 

For some, unfortunately, the VAT raid is likely to prove absolutely devastating – pupils, parents, schools, communities – and local Non-Independent Schools as they struggle to cope with the possible up to 40,000 pupils who will be looking for places!

But we can help the Bursars and the school finance teams to run the numbers quickly and accurately and provide the Governors with the options they need to be able to make data-driven decisions.

Our software, Forecast 5, is purpose built to do the following:

Generate balanced:

·  Forecast Cashflows

·  Profit and Loss Reports

·  Balance Sheets and

·  Funds Flow statements (for the latter, think ”Source and Application of Funds Statements” in old money or “Statements of Cashflows” in UK GAAP terms)

And all for up to fifteen years.

Because Forecast 5’s methodology is to track individual records set up for each line of income, cost, fixed assets, loans etc, and importantly in this case, VAT, each record can be separately reviewed.

This means that not only can VAT on future fees be traced but the model will include VAT on all applicable input costs, as well. And this includes tracking VAT on capital costs, and seeing the – in this case – positive impact on the school’s cashflow. And, with ease, get the timing of these input and outflows right.

The Bursar and his/her team can do a wide range of What If scenario planning predictions, working for instance, with different pupil levels, different staffing levels (oh dear!) and other derived input costs can be simply extrapolated. 

Whilst the results may not make happy reading, using Forecast 5’s What If capability into the planning process will introduce realism – reducing the guesswork – and the Bursar’s team can quickly amend input assumptions.

And as the year progresses, bringing actual results into Forecast 5 allows the finance team to run variance analyses, and, importantly, generate rolling forecasts to the year end, and run re-forecasts based on past results and realistic future estimates.

These features significantly improve the entire planning process.

It is said that Labour predicated its tax raid on a 2011 report that indicated it would raise £1.7bn from imposing VAT on school fees, claiming this would fund 6,500 new teachers for the state sector. But as this report ignored input VAT, these figures are widely derided.

In the House of Lords on 5 September, the President of the Independent Schools Association, Lord Lexden quoting research by Oxford Economics in 2022, stated:

  "The independent schools sector adds £16.5 billion to the UK economy, sustains 328,000 jobs, provides in one way or another £5.1 billion in tax, and saves the education budget £4.4 billion by educating pupils who would otherwise be a cost to the state, a saving that must now be expected to shrink as pupils are forced out of independent schools by the imposition of VAT."

It's certainly going to be tough for the Independent Schools’ finance teams as the struggle to come to terms with the possible loss of up to 40,000 pupils across the sector as a whole, but with a powerful budgeting programme like Forecast 5 at their fingertips at least they will be able to rely on providing fast, accurate, decision ready information to the Governors.

Action

 If you’d like to try Forecast 5 and see how it can assist your school, please download a trial here.If you’d like to attend an online demo of the product, please go this linkto sign on.

Or if you would like to discuss how you can improve your budgeting system to survive the VAT raid, please feel free to ring

 Geof Nightingaleon 07387 909754 or   Johnny Kipps on 07770 608 900