UK private schools hit with VAT charge from January 2025

UK private schools hit with VAT charge from January 2025

Tax breaks for private schools in England are a divisive topic that dates to the 1960s when they were introduced as part of the charitable status framework. Many of these institutions are registered charities, allowing them to benefit from tax exemptions for education under UK charity law. This status has its origins in the Charities Act 1960 and subsequent legislation, such as the Charities Act 2006.

After much debate, Labour is scrapping tax breaks for private schools from 2025, the government confirmed in the Autumn Budget: “We’re removing the exemption so that 20% VAT will be added to education and boarding fees charged by private schools from January.”

What you’ll learn in this quick guide

• How VAT works
• How much VAT will be added to private school fees
• What education services will be taxed
• How much parents can expect private school fees to increase by
• The impact of scrapping tax breaks for private schools on the state sector

What is VAT?

VAT (Value Added Tax) is a consumption tax added to most products and services sold by VAT-registered businesses in the UK. Crucially, it isn’t paid by businesses. Instead, it’s charged to consumers – parents in this case – making it an indirect tax. Businesses – in this case, private schools – are then responsible for reporting it to HMRC (His Majesty’s Revenue & Customs).

What will be taxed?

Under the new legislation, VAT will only be applied to education and boarding fees, rather than a blanket application on everything they provide. Therefore, other goods and services provided by a private school for delivering pupils education will remain exempt – such as school meals, transport and examination fees.

How much will fees increase?

VAT at the standard rate of 20% will be added to private school fees from 1 January 2025. This will apply to all payments for the January term made from 29 July 2024 onwards.

Private schools are expected to pass on at least some of the VAT cost to parents as they cannot bear the full cost themselves. Some schools have chosen to cover the extra costs for the remainder of this school year before adding the full VAT onto fees from September 2025.

Because private schools don’t have to reflect the VAT increase in the amount they charge parents for fees, the government doesn’t expect private school fees to go up by 20%. On average, they expect the new measures to increase fees by around 10%.

How might this impact state education?

By scrapping private school tax exemptions, the government expects to raise £1.5 billion next year, with the changes netting an extra £1.7 billion a year by 2029-30. Every penny has been promised to the state education sector, providing it with a financial boost – and making it an attractive alternative for parents.

Concerns that the move could place huge pressure on state schools, amid an influx of children whose parents can’t afford higher fees, have been quelled by Chancellor, Rachel Reeves. She said: “In the last 25 years, private school fees have gone up by 75%, and yet the numbers at private schools have remained static.

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FAQs

When will VAT on private school fees come into effect?

VAT will apply to private school fees from 1 January 2025. Payments made on or after 29 July 2024 for terms starting on or after this date are subject to VAT due to anti-forestalling measures.

Will VAT apply to pupils with Special Educational Needs (SEN)?

For pupils with an Education, Health, and Care Plan (EHCP) funded by local authorities, VAT can be reclaimed by the authority. However, if parents independently choose private education for their child without an EHCP stipulating the necessity, VAT will apply to the fees.

How much will private school fees increase?

The average increase in private school fees is projected by the government to be around 10%, though this may vary from school to school. We recommend to plan for the worst-case scenario, which is 20%, and also to contact each school to find out what their plans are in that respect.

Sources

• VAT on private schools: Everything you need to know
• Simply London: Are there good state schools everywhere in London?
• Private school tax breaks ‘a luxury we cannot afford’, says education secretary ahead of VAT raid

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Article published 14th January 2025