Private school VAT could affect 55% of parents

The government announced that from 1 January 2025, all education services and vocational training provided by private schools in the UK for a fee will be subject to Value Added Tax (VAT) at the standard rate of 20%.

Under the current rules, most education services provided by private schools are exempt from VAT.  In addition, charitable rates relief for private schools will also been removed from April 2025.

The new rules are expected to raise an additional £1.8bn per year by 2029/30.

The rising costs of private education, compounded by the introduction of VAT on school fees in January, are expected to impact more than half of children in private schools.

According to a survey of 2,000 high-net-worth individuals (HNWIs) 993 parents with children in private education expressed concerns about the financial burden.

Over half (55%) of these parents fear their children’s education could suffer solely due to the addition of VAT.  One in eight plan to transfer their children to state schools, with many already struggling to afford the fees before the tax change.

Only 15% of parents confirmed they have no plans to withdraw their children from private schools, while 6% admitted that their biggest worry is affording the fees – up from 0% in a previous report by Saltus.

In addition, one in five parents are considering moving their children to a less expensive private school within the next year. Some even contemplate relocating abroad, citing Labour’s stance on private education fees. 17% said they could cut spending in other areas to keep their children in private schools.

Despite these concerns, overall confidence in the economy among HNWIs has risen from 78% to 84%, the highest level in six years.

Charging and reclaiming VAT on goods and services related to private school fees

From 30 October 2024, school and boarding fees for school terms starting on or after 1 January 2025 will be taxable at the standard VAT rate of 20%.

This HMRC guidance explains how some payments and situations relating to education will be treated for VAT.

VAT will be due on the total of everything that is received in return for providing education to the student. For example, this may include the amount paid by the parent, as well as any external bursary that may be paid for the education of the student.

Click here to read the full guidance on charging and reclaiming VAT.

An area to not overlook when preparing your first VAT return, is the pre-registration VAT claim. See VIT32000 – How to treat input tax: pre-registration, pre-incorporation and post-deregistration claims to input tax under regulation 111 – HMRC internal manual – GOV.UK

If you are concerned how this change could affect you, please call 023 8046 1256 or email Michaela Johns.