Author: Glenn

More details have been published regarding Chancellor Rachel Reeves' plans to impose a VAT charge on private school fees. The government has said that the money raised by ending the tax breaks on VAT, and business rates for private schools, will help secure additional funding for state education programs.

From 1 January 2025, all education services and vocational training supplied by a private school, or a connected person, for a charge will be subject to VAT at the standard rate of 20%. Boarding services provided by a private school, or a connected person, will also be subject to VAT at 20%. In addition, any fees paid from 29 July 2024 pertaining to the term starting in January 2025 onwards will be subject to VAT. Boarding and lodging closely related to such supplies will also be subject to 20% VAT.

The government have also said they will legislate to remove eligibility of private schools in England to business rates charitable rates relief. However, the government accepts that some students with special educational needs may require the specific support available only in private schools. As a result, the government will review how to mitigate the potential effects of these changes for students whose private school placement is outlined in an Education, Health, and Care Plan (EHCP).

Schools that do not currently make any taxable supplies, such as renting out their facilities, will be able to register with HMRC starting from 30 October 2024, the date of the Autumn Budget. Schools that already make taxable supplies can choose to register for VAT before 30 October if they so wish.

School fees that were paid before 29 July 2024 will follow the VAT treatment in force at the time of the normal tax point for these supplies, where the fee rate for the relevant term has been set and was known at the time of payment.

It was announced as part of the Spring Budget measures that the present favourable tax benefits presently allowed for the letting of properties as short-term holiday lets – known as the furnished holiday lettings (FHL) tax regime – is to be abolished from April 2025. The Labour government has confirmed that these changes will take effect as planned.

HMRC has now published a policy paper providing further details of how these changes will work in practice.

The policy paper states that the changes will remove the tax advantages that current furnished holiday let landlords have received over other property businesses in four key areas by:

• applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax;
• removing capital allowances rules for new expenditure and allowing replacement of domestic items relief;
• withdrawing access to reliefs from taxes on chargeable gains for trading business assets; and
• no longer including this income within relevant UK earnings when calculating maximum pension relief.

After repeal, former FHL properties will form part of the person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses.

There is also an anti-forestalling rule that prevents the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules. This rule applies from 6 March 2024.

The loss of the special tax regime for holiday lets is expected to have a significant effect on many of those involved with the short-term holiday rental business in the UK.

You can usually claim tax relief on private pension contributions worth up to 100% of your annual earnings, subject to the overriding limits. Tax relief is paid on pension contributions at the highest rate of income tax paid.

This means that if you are:

• A basic rate taxpayer you get 20% pension tax relief
• A higher rate taxpayer you can claim 40% pension tax relief
• An additional rate taxpayer you can claim 45% pension tax relief

The first 20% of tax relief is usually automatically applied by your employer with no further action required if you are a basic-rate taxpayer. If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs on your self-assessment tax return.

You can claim additional tax relief on your self-assessment tax return for money you place into a private pension amounting to:

• 20% up to the amount of any income you have paid 40% tax on; and
• 25% up to the amount of any income you have paid 45% tax on.

You can also call or write to HMRC to make a claim if you pay Income Tax at 40%.

These figures apply for those claiming tax relief in England, Wales or Northern Ireland. There are regional differences if you are based in Scotland.

There is an annual allowance for tax relief on pensions of £60,000. There is also a three year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years if you have made pension savings in those years.

The lifetime limit for tax relief on pension contributions was removed with effect from 6 April 2023 and has now been abolished.

When a limited company makes charitable donations specific rules apply. These may include Corporation Tax relief for donations to registered charities or community amateur sports clubs (CASC), as well as capital allowances for equipment donated that has been used by the company.

However, the rules are different if the company is given something in return for making a donation, such as tickets for an event.

These rules apply to benefits given to any person or company connected with your company, including close relatives.

Charity sponsorship payments are different from donations because the company gets something related to the business in return. A company can deduct sponsorship payments from its business profits before it pays tax by treating them as business expenses. 

Payments qualify as business expenses if the charity:

• publicly supports the company's goods or services;
• allows the company to use their logo in company’s printed material;
• permits the company to sell their goods or services at the charity's events or premises; and/or
• has links from their website to the company's website.

The Competition and Markets Authority (CMA) has published an update on the widespread action it is taking to ensure that people can get the best possible choices and prices in the face of ongoing cost of living pressures. New analysis highlights how the cost to drivers of weakened competition in the fuel sector persists, but competition in the groceries sector appears to be more effective in bearing down on retail margins.

In its recent monitoring update, the CMA found:

• Retailers’ fuel margins – the difference between what a retailer pays for its fuel and what it sells at – are still significantly above historic levels.
• Supermarkets’ fuel margins are roughly double what they were in 2019.
• The total cost to all drivers from the increase in retail fuel margins since 2019 was over £1.6bn in 2023 alone.
• Competition among fuel retailers is failing consumers, just as it was in July last year when the CMA published its road fuel market study.

The CMA is currently monitoring developments in the fuel market using information provided voluntarily by fuel retailers. It has created a temporary price data-sharing scheme, and it is positive that some major players have started to integrate this into consumer-facing products, like apps. However, the current scheme covers only 40% of fuel retail sites and is not comprehensive enough to be used by map apps or satnavs to bring accurate, live information to people – and this is what would have a substantial impact on the market.

The proposed introduction of the Digital Information and Smart Data Bill by the new government could provide the legislative basis to set up a compulsory and comprehensive scheme that would change this – which the CMA would welcome.