Autumn Budget: VAT on private school fees

Chancellor Rachel Reeves has confirmed Labour’s plans to impose VAT on private school fees, and that this will take effect in January 2025. Those hoping for some breathing space and additional time to prepare will be disappointed, and schools will need to press ahead with their preparations for the change. Concerningly this may not be the only financial challenge that faces schools, arising from this budget, with Chancellor Reeves mentioning in her announcement that business rates relief for private schools will be removed from April 2025. The beacon of hope for schools in this budget was a promise of a substantial increase of funds dedicated to SEND services, an additional £1bn will be budgeted for this, though it is not clear the extent to which private schools will be able to benefit from this.

The Government published guidance on 10 October 2024, which provides some help with untangling some of the high point questions arising over when VAT is payable and when exclusions might arise. The guidance makes clear that VAT will be payable on board and lodging, and has to be paid on any payment received “in return for providing an education to the student”, wording which makes clear that VAT is payable on bursary payments. However, there are exemptions to VAT that can apply if the services being supplied are, for the larger part, related to the welfare of the pupil, rather than education.

The introduction of VAT on private school fees has been controversial and poses a very significant challenge for schools and parents. Earlier this month, a group of three private faith schools raised concerns that the change will amount to unlawful discrimination, as it could force the closure of Christian schools, and thus limit parents’ ability to choose a specifically Christian education (as opposed to a secular state education) for their children. They requested an exemption for schools that charge parents less than the Government pays for a child’s education; the group is working with lawyers to consider launching judicial review against the decision to apply VAT to private school fees. 

There appear to be significant obstacles for this route to be successful, not least because many state schools incorporate elements of collective worship, and approximately one third of state schools are of a “religious character”, the great majority of which are Christian. This does not seem like a clear cut winnable argument, and this is perhaps reflected in the fact that the letter of concern raised by the three faith schools was debated in Westminster Hall on 8 October 2024, but has led to no change in the proposed plans; schools should not let this potential action slow or limit their preparations for the introduction of VAT.

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