3 March 2025
Despite opposition, the new Government introduced VAT on private school fees in January 2025. We assess the impact on the sector, how families have been affected, and what lies ahead for private schools in the new world of fees + VAT.
Why VAT on school fees?
Like everything else we purchase, the price of private school education is always increasing. Over recent decades, school fees have risen between two and six per cent each year. Salaries tend also to grow each year thanks to the forces of inflation and as long as household incomes keep pace with the increases in school fees, private education will continue to be affordable for many. However, as with many services and products we buy, education has always been 'VAT exempt', meaning that the tax could not be charged on school fees. Because the Labour Party believes that private education is a luxury, it has now imposed a tax of an additional 20 per cent (the standard rate of VAT) onto school fee invoices.
Separate legislation will also be introduced in England in April 2025 to remove business rates relief for private schools that are charities. Private schools that are charities (around half) currently only pay 20 per cent of business rates.
Have fees increased 20 per cent?
VAT at 20 per cent must, by law, appear on the invoices schools send out. However, many schools have attempted to reduce their costs so that fee-payers don’t feel the full effect of the additional 20 per cent.
Once schools’ tax status changed to become VAT-eligible, they also became able to reclaim the VAT they are charged when purchasing goods and services. This will include money spent on capital investments in building projects. This is something they could not do under the previous tax arrangements. The Institute of Fiscal Studies, whose report formed the basis of Labour's policy, estimates that this deduction means that the bottom line on the invoices private schools send to parents should show something closer to a 15 per cent rather than 20 per cent increase. And schools may be able to cut costs elsewhere to further reduce what is passed on to parents.
Legal challenges
VAT on school fees is the reality now. The policy was introduced as part of the October 2024 budget and legislated to take effect starting in January 2025. In the meantime, various individuals and groups have threatened to challenge the policy and Lord Pannick, a KC and crossbench member of the House of Lords, has indicated that the imposition of VAT may breach European Court of Human Rights law. The Independent Schools Council (ISC) is considering legal options and Richard Tice, MP and leader of Reform UK, has expressed interest in mounting a legal challenge.
One group of six families, supported by the ISC, has filed a claim in the High Court which is now due to be heard in April 2025. Their claim focuses on the impact of the change on children with special educational needs.
Are parents paying 20 per cent more?
The total on invoices to parents should be fees plus the new VAT at 20 per cent. However, most schools have been able to cut their outgoings and therefore reduce their fees, resulting in the final figure being an increase less than 20 per cent. This is an issue that each school has had to address on its own terms. We know of some schools that have absorbed a significant part of the increase in this way through reducing staff, activities and bursarial support, but there are other schools whose paper-thin margins mean the increase has left them in an evermore precarious situation..
How are schools managing with VAT?
There are schools which have endeavoured to find a middle ground between absorbing the value of the VAT and passing on the full extent to parents. The GDST which operates 25 girls’ schools across England and Wales has increased the total costs to parents by 12 per cent. The King’s School Worcester (and schools in its group) has announced that costs to parents throughout the 24/25 academic year will stay the same and that for the following academic year the fee increase will be capped at 10 per cent. Giggleswick in North Yorkshire revealed that it will absorb all the additional costs while Eton College has stated that no concessions will be made and parents should expect their bill for the new year to increase by 20 per cent. However, the school has said it will bolster support for pupils on bursaries and those who may now need bursaries to continue at the school.
If you are still waiting to hear what your school (or prospective school) is planning for fees in both January 2025 and the academic year starting September 2025, now is the time to start asking questions. A term’s notice is the near-universal requirement if parents plan to remove a child, so parents should expect the same courtesy from schools when it comes to fee changes.
Can I pay school fees upfront?
If you have the financial reserves to do so, you should ask your school if this is an option. Paying multiple terms' fees upfront will still include VAT but may come with a small discount.
Are schools offering any financial help to parents?
No school wants to see a child forced to find a new school. However, this may be the reality for families who are unable to pay fees after the introduction of VAT. Parents with genuine concerns should speak to their school. There may be ways to spread costs or bursaries and hardship funds might be made available.
School closures
The new tax arrangements have left many schools feeling uneasy about their future and since VAT on fees was first announced, there has indeed been a steady stream of schools signalling their plans to close. It is impossible to judge how these schools may have fared without the additional new financial strains coming from VAT but, in many cases, VAT has clearly been a decisive factor in the closure. Such closures include highly regarded and much-loved institutions and there will be disruption to the education of thousands of children. The cloud's silver lining is that those families who continue in private education and seek places elsewhere will help shore up the finances of their new school which may too have been feeling VAT-related pressures.
There are also been increasing numbers of school mergers and collaborations going ahead with the aim of pooling resources, staff and facilities. In some cases this has been a larger school taking on smaller school without major disruption to either schools' day to day existence but there are also planned mergers where the site of one school will close and transfer staff, pupils and all business to the site of the school with which it is merging.
Who are exempt from paying VAT?
Fees charged by the country’s 32 state boarding schools, where education is paid for by the state and parents only pay the boarding fee, continue to be exempt from VAT. There is no such exemption for boarding fees charged by private boarding schools. There is also an exemption in place for charges related to before/after-school care, provided it is not educational.
British military and diplomatic families who use the Government’s Continuity of Education Allowance (CEA) to enable their children to attend UK boarding schools have seen a funding increase which covers some of the new added costs.
Similarly, children who have their places at private schools paid for by the music and dance scheme will have the added cost of VAT covered by the state-run fund.
Are children with SEND exempt?
Where local authorities pay for children with an EHCP to attend a private school, the local authority will be refunded the additional cost of VAT on fees but otherwise, no. No other child with SEND in receipt of a private school education will be exempt from the new VAT charges.
Moving my child from private to state school
If you anticipate moving school at a normal point of entry (entering reception, year 7, year 12 at the start of the academic year in September 2025) you can take part in the main round of admissions and your child will be subject to the same process as every other child applying. However, if you are going to apply to a state school at any other time or entering any other year group you will need to complete your LA’s in-year admissions process. In-year applications work differently as you need to apply directly to the admissions authority. If the school is run by the LA (eg a community or voluntary controlled school) then your LA is the admission authority. However, if you are applying to an academy, foundation or voluntary aided school (most faith schools fit into these categories), these schools are their own admissions authority and so you must deal directly with them for admissions.
The Government has stated that dropping birthrates should free up a lot of school places; hundreds of thousands in the next five years. However, while the national numbers make it appear as though the state sector can absorb both the short-term impact of pupils leaving private schools and the longer-term effects of families choosing not to go private, the more localised numbers paint a different picture.
Despite research published in the Financial Times that shows the majority of local authorities may have space in state schools, there are also many which will struggle to provide places for even a handful of children coming from the private sector. The situation in each local authority is different – a concentration of the worst affected seems to be in London and the South East - but you should be able to find details of place availability online or your LA will provide details on request. And remember even if you know a school doesn’t have any places available, there is nothing to stop you applying to the school and attempting to get a place through the appeals process.
What if we don’t like the state school we’re given?
Local authorities have a statutory duty to provide a school place for every child who applies for one. Once it has offered you a state school place, their statutory duty is done. Unfortunately, there is no requirement for the school to be one you would choose or be convenient to get to. In areas with a shortage of state school places, schools with worse reputations and poorer levels of academic performance are more likely to have places available.
There is also a possibility that the school place you are offered is a considerable distance from home. Statutory guidance says that the maximum length of journey a child should be given is 45 minutes at primary school and 75 minutes at secondary school. Local authorities interpret this in different ways although it’s worth mentioning that journeys of more than 2 miles (for children under 8) and 3 miles (for children 8 and over) will qualify you for free school transport.
Appealing the decision
You can appeal to any school that has rejected your application. You can also ask to be put on the waiting list. If you have been rejected from schools close to home but the local authority has found you a place at a school some distance away, you may choose to appeal to the schools that rejected you arguing that they would be a better option given the long journey your child would otherwise face. Read our article to understand more about school appeals. If you are not offered a school you like, our advice is to keep an open mind and try to find the good in it. Set aside reputation, pay it a visit and make your own mind up. If you really have no choice but to take the place, consider using some of your newly disposable income to supplement with tutoring and extra-curricular clubs outside of school to give your child the rounded education you were hoping for.
Alternatives to the state sector
If fee increases leave you with no choice but to take your child out of their school, it may be that a different private school in your area is still affordable. There are never guarantees about the availability of places and you might find yourself on a waiting list but if you’re determined to avoid whatever state school is made available to you, then this might be an option for you. If you have to bide your time waiting for place to become available at a state or private school or if you simply now want an alternative to mainstream schooling, then homeschooling, online or hybrid schooling may be worth looking into.
How can we help?
The Good Schools Guide Education Consultants helps hundreds of parents every year find the best schools for their children. With a wide range of experience across state, private and special education, our experts are available to advise and troubleshoot all your educational dilemmas.
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A version of this article first appeared on 27 June 2024