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Mitigating VAT impact on private schools: Preparing for change

As a new term begins, private schools are taking on new fees, with many focusing on cleaning up their ledger to anticipate potential VAT changes proposed by the Labour Party later this year. As a result, we've been noticing an increase in debt referrals from schools.

During school conferences last year, the potential tax exemptions for private schools were a heavily discussed topic. The Labour Party has announced that if they take office at the next election, they will remove several tax exemptions from these schools and impose a 20% VAT on private school fees.

What does this mean for private schools?

If this proposed 20% increase in VAT charges for private schools is implemented, schools could soon be evaluating the impact of making their fees taxable, which in turn could affect parents' ability to pay.

This change could lead to delayed or even non-payment. However, there is a positive note that schools would be able to recover the VAT on supplier invoices, reducing their liability to HMRC in their annual VAT returns.

How can private schools prepare for this possible change?

Private schools could prepare for these possible changes by finding ways to manage their accounts more effectively. For example, they could start looking at offering credit management solutions to parents who may find it challenging to pay their fees.

Schools could also delve deeper into improving their understanding of new parents’ ability to pay, reducing the risk of taking on particularly risky non-payers.

By managing their accounts closely and prioritising parents that they know may find the change more challenging, private schools will be able to mitigate the potential impact of these possible changes and reduce the risk of delayed or non-payment while maintaining their relationships with parents.

How can we help?

As a specialist in education sector credit management, Redwood Collections is here to support private schools in preparing for the potential impact of these proposed changes. With a milestone of £50m collected in unpaid school fees, our expert team have a proven track record in optimising private schools' cash flow and keeping outstanding fees at a low level.

We understand that maintaining pupil numbers is crucial for schools, and that's why we offer comprehensive credit management and debt collection services to over 900 schools and trusts in the independent school sector. Our impeccable track record of delivering successful results makes us the go-to name for credit control guidance.

Credit management

Our Redwood Credit Management (RCM) division is a specialist credit management service that focuses on preventing late payments, rather than collecting already late payments.

This service is an extension of our collections service and can be used to clear up ledgers that have aged and need attention. Our clients also engage with this service when the volume of work becomes too much for their internal accounts team to manage. We are even happy to place our staff on secondment at our client's offices for larger projects to make our client's lives easier.

Debt collection

In addition to our credit management service, we also have a team of experts who can recommend the most suitable action to take against your debtors if the worst happens. We ensure that our clients are regularly informed about the progress of their cases through a dedicated account manager.

ParentCheck+

Some parents may even request to pay their fees in advance if the VAT is implemented. However, schools may have concerns about the safety of handling large amounts of money and want to ensure that the funds are legitimate.

To address concerns like these, we offer our unique ParentCheck+ service that provides a batch screening solution for schools to screen potential customers. This service can flag any adverse information about the customer, including whether they have been sanctioned, have any connections to money laundering, or are Politically Exposed Persons. Our low match threshold ensures that our report includes records that even remotely relate to the subject, enabling schools to make informed decisions.

If you would like to know more about what Redwood can do to support private schools, please don't hesitate to contact us on 020 4519 4953.

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