Charge VAT on private school fees at current law

changelog.d/2318.fixed.md

@@ -0,0 +1 @@
+- Charge VAT at the standard rate on private school fees from 1 January 2025 (Finance Act 2025 ss.47 and 49), through the new `gov.hmrc.vat.private_school_fees_exempt` parameter. The contributed rate `gov.contrib.labour.private_school_vat` now raises the rate rather than adding to it, so reforms that set it to 20% score nothing from 2025. Household taxes include private school VAT as a change from baseline (`private_school_vat_change`), as they do VAT; government tax revenue includes the level.

policyengine_uk/data/fiscal_partition.yaml

@@ -43,9 +43,15 @@
 #     analytical decomposition already inside `head` through its inputs),
 #     composite (spans several heads), duplicate (same value as `head`),
 #     baseline_measure.
-#   model_double_counts[]: known violations still in the model (none).
+#   model_double_counts[]: heads whose formulas count the same receipt
+#     twice (none). Where two heads read separate inputs but their bases are
+#     not separated, the overlap, in the formulas or in the data, is
+#     recorded under its guard.
 #   overlap_guards[]: the places double counting could occur, and the
-#     property the tests check for each.
+#     property the tests check for each. kind: payer_split,
+#     geographic_exclusivity, level_and_change, shared_allocation_key,
+#     overlapping_base (the heads read separate inputs but their bases are
+#     not separated household by household), read_not_inclusion.
 schema_version: 1
 
 sources:
@@ -74,9 +80,9 @@ totals:
     label: Taxes borne by the household
     description: >-
       Taxes subtracted from household net income. VAT and employer NI enter
-      only as reform-induced changes (vat_change and the employer NI response
-      incidence), because baseline VAT and employer NI are not deducted from
-      the incomes the model starts from.
+      only as reform-induced changes (vat_change, private_school_vat_change
+      and the employer NI response incidence), because baseline VAT and
+      employer NI are not deducted from the incomes the model starts from.
     dropped_when:
       gov.contrib.abolish_council_tax:
         - council_tax
@@ -183,6 +189,13 @@ tax_heads:
     payer: consumer incidence
     totals: [gov_tax]
     sign: nonnegative
+    data_note: >-
+      Negative for 76 households on policyengine-uk-data 1.58.0
+      (enhanced_frs_2024_25) in every year from 2025 to 2030, -£72m weighted
+      in 2026: full_rate_vat_consumption is negative there because the
+      dataset's consumption (44 households) or full_rate_vat_expenditure_rate
+      (32 households, as low as -1.02) is negative. policyengine-uk-data
+      issue 565. Measured 2026-10-11.
   - id: vat_change
     label: Change in VAT from its baseline
     variable: vat_change
@@ -198,6 +211,11 @@ tax_heads:
       - head: vat
         route: vat_change adds vat and subtracts baseline_vat
         why: a change measure built from the level; the two are never in the same total
+  # Standard-rated from 1 January 2025: Finance Act 2025 s.47 inserts VATA
+  # 1994 Sch 9 Part 3, taking private school education, vocational training
+  # and closely related board and lodging out of the Group 6 exemption, for
+  # supplies on or after that date (s.49). Before it the head is zero unless
+  # the contributed reform rate is set.
   - id: private_school_vat
     label: VAT on private school fees
     variable: private_school_vat
@@ -206,12 +224,8 @@ tax_heads:
     obr_table_3_1: Value added tax
     report_group: vat
     payer: household
-    totals: [gov_tax, household_tax]
+    totals: [gov_tax]
     sign: nonnegative
-    zero_at_baseline: expected
-    zero_at_baseline_note: >-
-      gov.contrib.labour.private_school_vat is 0 at current law in this
-      model, so the head is reform-only here.
     reads:
       - head: income_tax
         route: private_school_vat -> attends_private_school -> income_tax
@@ -222,6 +236,30 @@ tax_heads:
       - head: council_tax
         route: private_school_vat -> attends_private_school -> household_benefits -> council_tax_benefit -> council_tax
         why: as above
+  - id: private_school_vat_change
+    label: Change in private school VAT from its baseline
+    variable: private_school_vat_change
+    entity: household
+    obr_line: Value added tax
+    obr_table_3_1: Value added tax
+    report_group: vat
+    payer: household
+    totals: [household_tax]
+    sign: any
+    zero_at_baseline: expected
+    reads:
+      - head: private_school_vat
+        route: private_school_vat_change adds private_school_vat and subtracts baseline_private_school_vat
+        why: a change measure built from the level; the two are never in the same total
+      - head: income_tax
+        route: private_school_vat_change -> private_school_vat -> attends_private_school -> income_tax
+        why: attendance is imputed from income; it decides who attends, not how much tax is counted
+      - head: nics_individual
+        route: private_school_vat_change -> private_school_vat -> attends_private_school -> (net income) -> national_insurance
+        why: as above
+      - head: council_tax
+        route: private_school_vat_change -> private_school_vat -> attends_private_school -> household_benefits -> council_tax_benefit -> council_tax
+        why: as above
   - id: fuel_duty
     label: Fuel duties
     variable: fuel_duty
@@ -509,6 +547,7 @@ exclusions:
   - {variable: student_loan_repayment, kind: component, head: student_loan_repayments}
   # Consumption
   - {variable: baseline_vat, kind: baseline_measure, head: vat_change, note: "Subtracted inside vat_change."}
+  - {variable: baseline_private_school_vat, kind: baseline_measure, head: private_school_vat_change, note: "Subtracted inside private_school_vat_change."}
   - {variable: beer_duty, kind: component, head: alcohol_duty}
   - {variable: cider_duty, kind: component, head: alcohol_duty}
   - {variable: sparkling_cider_duty, kind: component, head: alcohol_duty}
@@ -554,18 +593,44 @@ overlap_guards:
     property: >-
       Each allocates a different receipt by shareholding; none reads another.
       corporate_tax_incidence sums two of them and is excluded.
+  - id: private_school_vat_level_and_change
+    kind: level_and_change
+    heads: [private_school_vat, private_school_vat_change]
+    property: >-
+      Never in the same total: the level is in gov_tax and the change in
+      household_tax, as for vat and vat_change. private_school_vat_change
+      reads private_school_vat.
   - id: private_school_vat_and_vat
-    kind: possible_base_overlap
+    kind: overlapping_base
     heads: [vat, private_school_vat]
     property: >-
-      vat applies to imputed consumption; if that consumption includes school
-      fees, turning on private_school_vat would tax them twice. The head is
-      zero at baseline, so baseline totals are unaffected; check the
-      consumption imputation before costing a reform that sets it.
+      The two heads read separate inputs and parameters (tested in
+      test_private_school_vat_properties.py), but their bases are not
+      separated household by household. vat applies one household full-rate
+      share (full_rate_vat_expenditure_rate) to all imputed consumption,
+      education included. On the microdata the share is trained on ETB VAT
+      paid in the financial year ending 2024, when private school fees were
+      exempt, and predicted from household composition and income only
+      (policyengine-uk-data datasets/imputations/vat.py): in aggregate it
+      prices the fees as exempt, and a fee-paying household's fees are
+      charged at its blended share. In a household calculation with the
+      default share of 0.5, education consumption entered as an input is
+      charged in vat as well as in private_school_vat, where attendance is
+      an input. private_school_vat charges the fees once, at the higher of
+      the statutory and contributed reform rates. On calibrated data the two
+      overlap in aggregate: policyengine-uk-data calibrates weighted vat to
+      the OBR VAT receipts line, which includes VAT on private school fees
+      from 2025-26 (costed at 1,505m pounds for 2025-26), so gov_tax counts
+      that VAT in both heads until the target nets it out
+      (policyengine-uk-data issue 567).
   - id: eligibility_reads
     kind: read_not_inclusion
-    heads: [tv_licence, private_school_vat]
+    heads: [tv_licence, private_school_vat, private_school_vat_change]
     property: >-
       These heads reach other heads of the same total only through
       eligibility or imputation (see each head's reads). Raising the other
       head by a small amount leaves them unchanged on the test population.
+      For the private school heads that check is vacuous: attendance is
+      imputed only on a dataset (on a situation it is zero or an input), so
+      a tax change moves them only through re-imputed attendance on the
+      microdata (policyengine-uk-data issue 568).

policyengine_uk/parameters/gov/contrib/labour/private_school_vat.yaml

@@ -1,6 +1,7 @@
-description: VAT rate applied to private schools.
+description: Contributed reform rate of VAT on private school fees. The fees bear VAT at the higher of this rate and the statutory rate (the standard rate from 1 January 2025, when the exemption ended), so the reform can raise the rate but never charges VAT on the fees twice.
 values:
   2000-01-01: 0
 metadata:
   unit: /1
-  label: Private school VAT rate
+  period: year
+  label: Private school VAT rate (reform)

policyengine_uk/parameters/gov/hmrc/vat/private_school_fees_exempt.yaml

@@ -0,0 +1,25 @@
+description: Education, vocational training and closely related board and lodging supplied by a private school are exempt from VAT if this is true. From 1 January 2025 they are not exempt, so the fees bear VAT at the standard rate.
+values:
+  1973-04-01:
+    value: true
+    metadata:
+      reference:
+        - title: Finance Act 1972, Schedule 5, Group 6, item 1 (as enacted)
+          href: https://www.legislation.gov.uk/ukpga/1972/41/schedule/5/enacted
+        - title: Value Added Tax Act 1994, Schedule 9, Group 6, item 1 and note 1(a) (as enacted)
+          href: https://www.legislation.gov.uk/ukpga/1994/23/schedule/9/enacted
+  2025-01-01:
+    value: false
+    metadata:
+      reference:
+        - title: Finance Act 2025, section 47 (removal of exemption for private school fees; inserts Value Added Tax Act 1994, Schedule 9, Part 3)
+          href: https://www.legislation.gov.uk/ukpga/2025/8/section/47/enacted
+        - title: Finance Act 2025, section 49 (effect for supplies on or after 1 January 2025)
+          href: https://www.legislation.gov.uk/ukpga/2025/8/section/49/enacted
+metadata:
+  unit: bool
+  period: year
+  label: Private school fees exempt from VAT
+  reference:
+    - title: Value Added Tax Act 1994, Schedule 9 (exemptions)
+      href: https://www.legislation.gov.uk/ukpga/1994/23/schedule/9

policyengine_uk/tests/policy/baseline/gov/hmrc/excise_integration.yaml

@@ -22,6 +22,7 @@
     ni_employer: 0
     non_primary_residence_wealth_tax: 0
     private_school_vat: 0
+    private_school_vat_change: 0
     student_loan_repayments: 0
     tv_licence: 0
     vat: 0