Gift aid and bursaries

How schools can boost income for bursaries. By Barry Gower

A recent article in The Sunday Times from last year highlights how parents at some independent schools are paying additional fees (or levies) which are used by the school to fund bursaries and scholarships. The article points out that “in return for keeping charitable status, independent schools have come under pressure from Labour’s Charities Act, which takes effect on January 1, to demonstrate their intake is not exclusively from wealthy families.”

There could be a way to benefit financially from this system with careful planning.

New system
Instead of simply adding the levy to school bills, parents could be given the net bill as an obligation, and then asked to add an additional amount, as a donation. It must be clear that this amount will be a voluntary sum and that there is no legal obligation for any parent to pay it. Parents may pay some, none, or all of it. Indeed, to ensure that it is voluntary, there should be evidence to show where an election to pay a different amount has been made (or nothing at all). Equally, there is nothing to stop the school encouraging its parents and alumni to give increased amounts.

There is a danger that parents will elect to pay the bill only and ignore the request for the donation. However, independent schools and their parents’ associations can lobby parents prior to the introduction of the scheme. In addition, the research in The Sunday Times indicates that many parents “are happy to put money towards the fees of children of poorer families.”

Added extras
But there is an even bigger bonus. The law does not allow school fees to qualify for gift aid. However, a donation to an independent school (when a registered charity) does qualify. And on the assumption that parents sending children to an independent school are higher rate tax payers, this could represent an actual reduction of the fees that they pay.

Consider the example given by the newspaper of Millfield, a boarding school in Somerset. The fees of £23,600 include a £3,000 “levy”. Under the current system, the cost to a parent is the whole amount of £23,600. Let’s assume that the levy portion is taken out and the parent pays the fees portion of £20,600, and makes a donation of £3,000. Under gift aid, the school can claim a further 28 per cent of the donation, making £840.

The parent, as a high rate taxpayer, can claim tax relief of 18 per cent on the gross donation of £3,840, which makes £691. If this is donated to the school, it means a gross donation of £1,531. The net result is that the school will be better off to the tune of £1,531 or just over half the donated amount. It is therefore possible for the parent to pay a reduced amount, as a combination of school fees and donation, and the school to end up no worse off. Working the example backwards means that the actual levy amount could be reduced from £3,000 to £1,986. The school would claim gift aid of £556 and the high rate taxpayer relief is £458, making a total saving of £1,014, or 33.8 per cent.

This could be a classic case of using the offices of the Inland Revenue (HMRC) to fundraise, using a truly laudable levy.

Barry Gower is managing director of GAIN (Gift Aid Recovery Consultants). Barry can be contacted on bg@gain.me.uk or 020 8868 1307.

Return to Gift Aid