During its 2024 general election campaign, the Labour Party pledged to “end the VAT exemption and business rates relief for private schools”, using the funds raised to “invest in our state schools”. This move, the Treasury says, is set to raise an additional £460 million for the state school sector in 2024/25, rising to £1.5bn in 2025/26.
Up until now, education services have been exempt from VAT, enabling independent schools to offer education and boarding services without adding VAT to their fees. Many private schools also enjoy charitable status, enabling them to benefit from the 80% discount on business rates available to charitable organisations. This relief is worth an average of £87,200 per year for eligible schools.
When the Labour Party took power, it was announced that legislation would be passed to remove independent schools’ VAT exemption, meaning that 20% VAT would be added to private school fees from 1 January 2025. Meanwhile, business rates relief would end on 1 April 2025.
Understandably, many parents of children currently attending independent schools, as well as those considering sending their child to a private establishment, were and remain concerned about their ability to afford independent school fees going forwards.
In this article, we will detail everything you need to know about VAT on school fees thus far, and outline some strategies you may be able to employ to ensure your children can continue to enjoy a first-class education.
What services will be liable for VAT?
The draft legislation to remove private schools’ VAT exemption states that VAT will apply to:
- Education (including sixth form) and vocational training fees at independent schools
- Boarding fees at independent schools.
Will school fees actually increase by 20%?
It is not expected that all private schools will pass the full 20% cost onto fee-payers. Although many of the UK’s elite institutions, including Eton, have passed on the full 20% increase onto parents, many smaller schools with less wealthy clientele will likely attempt to absorb some of the cost.
One way schools will be able to do this is by reclaiming VAT. Like any other business that charges VAT, private schools will be able to reclaim VAT paid on capital projects such as buildings and land acquisition, as well as costs associated with the supply of education, such as equipment, computers and stationery. The government has also confirmed that schools will be able to reclaim VAT on capital projects completed over the past decade.
Schools may also employ other cost-saving measures, such as cutting back on non-essential expenditure or reducing their surpluses or reserves. Overall, the government expects an average fee increase of around 10%.
Does this affect fees I have already paid?
The government has put in place anti-forestalling provisions to ensure that pre-payments of school fees for terms starting on or after 1 January 2025 will be subject to VAT.
If you paid in advance for school or boarding school fees between 29 July 2024 and 30 October 2024, and this payment was for educational services in the 2025 academic year, VAT will be charged on this payment.
There are no retrospective VAT obligations for any fees paid prior to 29 July 2024.
How will this affect children with Special Educational Needs and Disabilities (SEND)?
There are fears that children with special education needs may suffer from the withdrawal of the VAT exemption for private schools.
In some cases, private school places for children with SEND are funded by local authorities if it is believed that a private school education is necessary to meet the unique needs laid out in their Education, Health and Care Plan (EHCP). In this case, the local authority can reclaim VAT on the fees. However, if the local authority decides that the child could attend a state school and still have their needs met, their parents would be responsible for paying the fees, plus 20% VAT.
There are also concerns that private schools will tighten their belts to reduce the impact of VAT, which could affect the level of additional support provided to children with SEND at private schools.
The government has stated that parents who move their SEND child to a state school may face disruption and an increased administrative burden while the new school puts the right support in place. However, it said that only a small minority of children (6% of private school pupils) are predicted to leave the private school system as a result of this measure, and that any short-term detriment may be lessened by the additional funding state schools – and their one million SEND students – will receive.
How to afford increased school fees
If you are worrying about how you’ll afford your child’s school fees from 1 January 2025, we have a comprehensive guide on funding school fees for parents and grandparents, which outlines a wide range of financial planning methods that may be available to you.
Head to our planning for your child’s education page
If you think you may benefit from some bespoke school fees planning advice tailored to your financial situation, please do not hesitate to contact us on 01276 34932.