While we don’t know for sure what will be in Rachel Reeves’ red box when she delivers her first Budget on 30th October, one measure which has been well signposted in advance is the introduction of VAT on private school fees.
The only real uncertainty is exactly when the new tax will come into effect. The published technical note and draft legislation says that VAT will be chargeable in respect of school terms starting on or after 1st January 2025. However, introducing the measure part-way through the school year doesn’t really give schools, parents or HMRC enough time to adequately prepare and introduce the changes, and in any case, the initial consultation period only finished a couple of weeks ago.
But even if the date is pushed backwards, it seems certain that VAT will be chargeable on private school fees from 1st September 2025 at the latest, and quite possibly in time for the new tax year at the start of April next year.
Some schools have come up with schemes to try and mitigate the effect of VAT, by suggesting parents pay for one or two years – or even for their child’s complete education – in advance. This is unlikely to be effective if undertaken now, as anti-forestalling measures have already been announced. The draft legislation says that VAT will be payable on monies paid any time after 29th July for fees covering the period after which it applies to school fees, so that ship has almost certainly sailed.
The Institute for Fiscal Studies has published data which showed that private school fees have risen by 20% in real terms since 2010, and a staggering 55% since 2003, without any significant effect on pupil numbers. So we simply don’t know to what extent the introduction of a 20% VAT charge will deter parents from sending their children to private schools.
In any case, schools will almost definitely do their best to shoulder some of the burden. For a start, they may be able to claim VAT back on eligible expenditure (including capital projects going back ten years), although in the education sector it is people which is the major cost centre, and VAT doesn’t apply to salaries.
Large, well-endowed private schools may have the resources to at least temporarily soften the blow for parents, but smaller establishments (which make up the majority of private schools in Norfolk) will be less able to offer support.
So parents who want their children to enjoy a private education will need to prepare for the extra cost that VAT will impose on fees. Starting at the earliest opportunity to plan how they will pay those fees earlier is the best advice; this is one aspect of the Budget where we can be reasonably certain of what is coming. Join us at our post budget events.
