Private school fees — VAT measure
Updated 15 November 2024
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This publication is available at https://www.gov.uk/government/publications/vat-on-private-school-fees/ac8c20ce-4824-462d-b206-26a567724643
Who is likely to be affected
Education providers that supply full-time education services (including boarding services) or vocational training to children of compulsory school age, for a fee. Institutions that are principally concerned with providing education suitable for 16 to 19 year olds and where the majority of their 16 to 19 year old pupils pay fees (for instance, private sixth forms). Fee payers and the pupils who receive these services.
General description of the measure
From 1 January 2025, all education and boarding services provided by a private school or connected person will be subject to VAT at the standard rate of 20%. Pre-payments of fees or boarding services on or after 29 July 2024 that relate to terms starting on or after 1 January 2025 will also be subject to VAT at the standard rate.
Policy objective
The government is removing the VAT exemption for education and boarding services provided by private schools in order to raise revenue to support the public finances and help deliver the government’s commitments relating to education and young people, including the 94% of school children who attend state schools.
In making these changes the government aims to ensure that high quality education is available for every child and that the system is fair, with all users of private schools paying their fair share, while ensuring that pupils with the most acute needs which cannot be met in a state school, and where their place in a private school is therefore funded by their local authority, are not adversely impacted by the changes.
Background to the measure
On 29 July 2024, the government announced that, as of 1 January 2025, all education, boarding, and vocational training provided for a charge by a private school in the UK will be subject to VAT at the standard rate of 20%. The government also published draft legislation, an explanatory note, and a detailed technical note for consultation requesting views on the technical elements of the proposed changes.
The technical consultation ran for 7 weeks and ended on 15 September 2024. The government received 17,502 responses ahead of the consultation closing date from a range of tax specialists, parents, schools, bodies that represent private schools (including faith schools and special schools), and others. The government’s response to the technical consultation was published on 30 October 2024. Alongside the technical consultation, government ministers and officials met with a wide range of stakeholders representing schools, local authorities and devolved governments.
Alongside these VAT changes, the government also announced that schools in England with charitable status would lose their eligibility to business rates charitable relief from April 2025, subject to parliamentary passage of separate legislation. This tax information and impact note addresses VAT changes only.
Detailed proposal
Operative date
The policy will take effect on 30 October 2024. A resolution made under the Provisional Collection of Taxes Act 1968 will accompany the legislation in Finance Bill 2024-25. Whilst the legislation takes effect from this day, it applies in respect of terms which start on or after 1 January 2025.
If a private school invoices or takes payment from 30 October 2024 of fees in respect of terms which start on or after 1 January 2025, VAT will be due when the invoice or payment is taken. The standard VAT registration rules apply to these payments.
The measure also includes anti-forestalling provisions to capture pre-payments of fees made from 29 July 2024. If a private school invoices or takes payment on or after 29 July 2024, but before 30 October, and this relates to the school term starting on or after 1 January 2025, VAT will be due on the first day of that term.
Current law
Section 31 of, and Group 6 of Schedule 9 to, the Value Added Tax Act 1994 provides for an exemption from VAT for education.
Item 1 of Group 6 of Schedule 9 to the Value Added Tax Act 1994 specifies the exemption is extended to the provision of education or vocational training by an eligible body.
Note 1 of Group 6 of Schedule 9 to the Value Added Tax Act 1994 defines an eligible body and includes certain types of schools including private schools.
Item 4 of Group 6 of Schedule 9 provides an exemption for the supply of goods and services closely related to the principal supply (Item 1), where they are for the direct use of the pupil, student or trainee and necessary for the delivery of the education or between eligible bodies.
Proposed revisions
The measure will introduce a Part 3 into Schedule 9, which sets out exceptions to the exemptions in that schedule. The exceptions being introduced will have the effect of removing the exemption for education and boarding services provided by private schools.
Specifically, the provision of education by a private school, the provision of vocational training by a private school and the provision of board and lodging which is closely related to a supply of the education provided by a private school will become an exception to the exemption, rendering them subject to VAT.
A ‘private school’ is defined as an institution which is either —
- (a) a school —
- (i) at which full-time education is provided for pupils of compulsory school age or, in Scotland, school age (whether or not such education is also provided for pupils under or over that age),
- (ii) where fees or other consideration are payable for that provision of full-time education, and
- (iii) which is not a nursery school, or
- (b) an institution —
- (i) which is wholly or mainly concerned with providing education suitable to the requirements of persons over compulsory school age (or, in Scotland, school age) but under 19,
- (ii) at which full-time education is provided for such persons,
- (iii) where the provision of full-time education falling within sub-paragraph (ii) is wholly or mainly provision in respect of which fees or other consideration are payable, and
- (iv) which is not an independent training or learning provider. A connected person will be treated as a private school for this legislation.
Anti-forestalling provisions will apply to prepayments of school fees for terms starting on or after 1 January 2025 where those prepayments are received on or after 29 July 2024 but before 30 October 2024. Private schools will not be losing their eligible body status for the purposes of the education exemption.
The supply of goods and services closely related to a supply of education or vocational training, other than boarding, will continue to be exempt under the separate exemption at Item 4 of Group 6 of Schedule 9 to the Value Added Tax Act 1994.
The normal VAT rules will continue to apply if a school supplies one or more goods or services as a package. Where this package is deemed to be a single supply this will have a single VAT treatment, and the predominant element will determine the VAT liability of this supply. Where each separate element represents a separate aim to the customer these will be treated as sperate supplies with their own identity and VAT treatment.
Summary of impacts
Exchequer impact (£ million)
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 |
|---|---|---|---|---|---|
| + 460 | + 1,505 | + 1,560 | + 1,610 | + 1,665 | + 1,725 |
These figures are set out in Table 5.1 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2024.
Economic impact
In their Autumn 2024 Economic and Fiscal Outlook, the Office for Budget Responsibility estimate that the introduction of VAT on private school fees adds a maximum of 0.1% to CPI during the forecast period.
School fees
Charging VAT at the standard rate of 20% does not mean that schools must increase fees by 20%. Private schools charging VAT will also be able to reclaim VAT paid on their inputs, such as capital expenditure and purchases of educational supplies. After recovery of VAT on their costs, on average the government expects schools to be liable for VAT amounting to approximately 15% of fee income, though this will vary between schools.
It will be a commercial decision for individual schools how they fund this additional cost. There are a variety of ways in which a school may choose to do this, including reducing their surpluses or reserves, cutting back on non-essential expenditure, and increasing fees. Whilst it will be for individual schools to consider how they manage this cost based on their individual circumstances, the government expects private schools to take steps to minimise fee increases. On average, the government expects private school fees to increase by around 10% as a result of this measure.
Empirical evidence to date suggests there is considerable variation between schools, with some schools fully or partially absorbing VAT costs and others increasing their fees by as much as 20%, by more than the net increase in their costs as a result of this measure.
Pupil moves
The number of pupils in private schools has remained steady despite a 75% real-terms increase in average school fees since 2000.
The government recognises, however, that some parents may not be able or willing to pay higher fees. The government predicts that, in the long-run steady state, there will be 37,000 fewer pupils in the private sector in the UK as a result of this measure. This represents around 6% of the current private school population.
Of the 37,000 pupil reduction in the private sector, the government estimates an increase of 35,000 pupils in the state sector in the steady state following the VAT policy taking effect, with the other 2,000 consisting of international pupils who do not move into the UK state system, and domestic pupils moving into homeschooling. This state sector increase represents less than 0.5% of total UK state school pupils, of which there are over 9 million.
The government estimates that the increase in pupils at state schools will build up progressively over time as follows.
Estimated cumulative increase in number of pupils at UK state schools resulting from measure, by school year
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 | Long-term |
|---|---|---|---|---|---|---|
| 3,000 | 14,000 | 20,000 | 24,000 | 27,000 | 29,000 | 35,000 |
Where this change occurs, the government expects much of it to take place at natural transition points, such as when a child moves from primary to secondary school, or at the beginning of their GCSE or A-Level years. Furthermore, some of this change will result from parents opting not to send their child to private school when they otherwise might have done, rather than removing their child from a private school. As set out in the previous table, the government estimates only 3,000 moves in 2024 to 2025.
Alongside the revenue raised, this policy will result in some additional costs on state schools due to pupil moves. Based on average 2024 to 2025 per-pupil spending in England, the government expects the revenue costs of pupils entering the state sector as a result of the VAT policy across the UK to steadily increase to a peak of around £270 million per annum after several years.
Overall, this means that expected revenue will substantially outweigh additional cost pressures. The funding raised by this measure will help deliver the government’s commitments relating to education and young people.
Pupil numbers in schools fluctuate regularly for a number of reasons, and the school funding system in England is already set up to manage that. Education funding is a devolved matter, though the Barnett formula will also apply in the normal way for the devolved governments. For individual schools, the government therefore expects changes in pupil numbers resulting from this measure to be managed in the usual way. The government is confident that schools in the state sector will be able to accommodate these additional pupils. The impact on the state education system as a whole is expected to be very small.
National and regional effects
The impacts of this policy may vary between different parts of the UK as a result of different local circumstances. Some areas of the UK have a higher concentration of private schools and a higher proportion of local pupils attending private schools; there are also variations in local state sector capacity. Impacts in Scotland, Wales, and Northern Ireland will generally be smaller than in England because those nations have a lower proportion of pupils in private schools, but again there will be regional variation. National differences in education policy will also shape impacts.
Impact on individuals, households and families
This measure will impact on pupils attending private schools and their families, who may need to pay increased fees as a result of VAT passthrough. It will also have indirect beneficial impacts on the 94% pupils attending state schools, as revenue raised will help the government to fund its commitments on education and young people.
Parents and carers may choose to increase working hours to cover fee increases, with impacts on work-life balance, or there may be disruption caused by children moving to new schools. Disruption will be greater if these moves occur within school years or key educational stages (for example, during GCSEs or A-levels). However, this disruption will only affect a small proportion of pupils and families. The government expects the vast majority (94%) of pupils currently in private schools to remain in private schools. There is not expected to be a significant impact on family formation, stability and breakdown as a result of this policy, given that all children of compulsory school age are entitled to a state-funded school place if they need one.
Customer experience for individuals is expected to remain the same as this measure does not alter how those individuals interact with HMRC.
Equalities impacts
The government does not hold full pupil-level data for those attending private schools in the whole of the UK. To assess equalities impacts, the government has considered a range of data including consultation responses and data published by the Independent Schools Council (ISC). The ISC does not represent all private schools but does represent around half of the sector across the UK.
Age
Approximately 600,000 children, or 6% of school age children, are educated at private schools in the UK. The vast majority of these children will not be directly affected by this measure. In most cases, parents and carers with children at private schools will be faced with increased fees. However, as set out above, not all schools will increase fees as a result of this measure, and where increases do occur, they will be varied with an estimated average of around 10%. The government expects most families to choose to pay increased fees. The revenue raised by this measure will be used to fund the government’s education priorities, benefitting the 94% of children who attend state schools.
In cases where parents are unable or unwilling to pay increased fees resulting from this measure, and children need to move schools, this will result in potentially disruptive impacts. However, the government expects this to apply to less than 6% of pupils currently in private education.
School closures or expenditure cutbacks, where they occur, will also impact on some working-age people employed by schools. However, the government expects the vast majority of private schools to remain open following implementation of this measure (read the section ‘Impact on business including civil society organisations’ for more information).
Sex
Data published by the Department for Education show that in England 51.3% of pupils at private schools are boys and 48.7% are girls. Among members of the ISC, the split between male and female attendance is likewise broadly equal, with a slightly higher proportion of boys (50.7%). Most private schools are mixed. Among ISC member schools there are 1,155 co-ed schools and 256 single-sex schools, including 155 girls’ schools and 101 boys’ schools. This measure will affect boys and girls equally because there are almost equal numbers of them in private education, but as there is a higher proportion of girls in single-sex schools there will be some differential impacts on girls who, if required to move into the state sector, may be moving from single-sex to mixed education.
Ethnicity
In ISC schools (UK-wide), around 58% of pupils are from a white British background, while 42% are from an ethnic minority background. In ISC schools in England, around 40% of pupils are from an ethnic minority background, which is slightly higher than the proportion of pupils from an ethnic minority background in the state sector in England (36%). The proportion of pupils in all ISC schools (UK-wide) from an ethnic minority background has increased considerably in recent years, with 23% of ISC pupils identified as being from an ethnic minority background in 2009 compared to 42% in 2024. We do not have data showing further breakdowns of ethnic groups and therefore cannot determine conclusively if there will be different impacts.
Disability
Around 18% of pupils in England have Special Education Needs and Disabilities (SEND), which is comparable to the proportion in ISC schools UK-wide (20%). Not all SEND pupils have a disability, though it is expected that the majority would be classified as such under the Equality Act 2010. Of the pupils in ISC schools with SEND, 7% have been placed by a local authority through an Education Health and Care Plan (EHCP). This measure will not impact pupils with the most acute additional needs, where these can only be met in private schools. Local authorities fund pupils’ places in private schools where their needs can only be met in a private school. For example, in England, where attendance at that private school is required by a child’s EHCP, local authorities will be able to reclaim the VAT on the fees from HMRC. In Northern Ireland, it will be the Education Authority who fund placements in private schools and will be able to reclaim the VAT.
If parents or guardians decide to move their disabled child from the private to the state sector, the new state school is required to meet a range of statutory duties that oblige them to ensure that the right support in place. These include duties under the Equality Act 2010 (for example not discriminating and making reasonable adjustments). If the child’s disability meets the definition of having special educational needs, the state school would have further duties to meet these needs.
In cases where pupils with SEND move schools as a result of this measure, there will be disruptive impacts, while their local authority puts in place measures to meet their needs. Parents or guardians of SEND pupils may experience a more significant administrative burden if they choose to move the child to a different school or apply for an EHCP (or both). However, the government estimates that only a very small minority of private school pupils (6%) will move and that most school moves will occur at natural transition points, which will reduce overall disruption. Longer-term impacts on this group may be lessened by revenue raised by this measure being used to help the 94% of children who attend state schools, including over one million children with SEND.
Religion or belief
Almost half (48%) of ISC schools stated they have a religious affiliation or ethos and could be considered faith schools, compared to around 34% of state-funded mainstream schools. The majority are schools of Christian denominations, though the sector also provides for a range of faiths, including Muslim and Jewish schools.
The relationship between school classification and the religion of pupils is complex. Many schools, including both schools with and without a specific religious affiliation, cater for pupils of different faiths and none. The group of private schools classed as faith schools is large and highly varied in terms of numbers of pupils per school, fees, location, faith or denomination represented, and the role of faith within the school (whether a school has a general faith-based ethos but is designed to cater for children of all faiths and none, or whether a school is designed to cater for a very specific faith community), which makes the assessment of impacts more challenging.
The impact on faith schools, and the consequential impact on pupils at those schools and their families, will also vary depending on funding models. For smaller faith schools, which in many cases rely on voluntary donations in addition to, or instead of compulsory fees, this measure will have lesser impacts because donations are not subject to VAT.
Overall, as there is a lot of variation between faith schools, the government anticipates the impacts of this measure will also vary. Compared to non-faith schools, some may experience more pronounced impacts and some may experience less. In cases where pupils move school as a result of this measure, a greater degree of impact may be felt by faith school pupils if they cannot be placed in an alternative school with the same religious denomination. For some parents and pupils, these impacts could be seen as significant, though the government expects this to occur only in a small number of cases. All children of compulsory school age are entitled to a state-funded school place, and the government is committed to ensuring that all state schools are welcoming environments for children of all faiths and none.
Other protected characteristics
The government has also considered the protected characteristics of sexual orientation, gender reassignment, and pregnancy and maternity, and has not identified any specific impacts from this measure.
Impact on business including civil society organisations
This measure will have a significant impact on private schools and other providers which supply education services (including boarding services) or vocational training to children of compulsory school age for a fee.
In addition to the tax cost, this measure will also introduce some new administrative burdens. Schools not already registered for VAT will need to do so, a process which can be completed online. HMRC will work to ensure that the experience for schools affected by the new rules is as straightforward as possible.
Once registered, businesses are required to keep digital records and file electronically through Making Tax Digital software, which reduces errors and supports better administration. Schools with an annual taxable turnover under £1.3 million can use one of HMRC’s simplification schemes. The cash accounting scheme allows VAT to be accounted for when sales and purchases are paid for rather than invoiced, and the annual accounting scheme allows for just one VAT return a year, with regular monthly instalments and a balancing repayment with the return. This will bring private schools’ experience of dealing with HMRC in line with that of other VAT-registered businesses. Registering and administering VAT would negatively impact the experience of dealing with HMRC for schools that currently do not have to do so, though HMRC will seek to mitigate this using a suite of products including bespoke guidance, a series of webinars, and an interactive tool to help schools calculate the date from which they will need to register.
The measure is expected to have a significant impact on the administrative burdens of approximately 2,600 businesses impacted by this measure. The one-off implementation cost to businesses entering the VAT system is estimated to be around £1 million. This includes familiarisation with the new requirements and registration for VAT. It does not include the cost of administration burdens not directly related to tax obligations, such as business planning for operating cost reductions that may be made by schools in response to the measure. The total annual ongoing administrative burden for the small business population of accounting for VAT is expected to increase by £9 million. Ongoing costs will include businesses having to record more information, do more calculations and provide HMRC with more data. The average annual ongoing cost per business is £3,400, but the cost will vary according to the size and complexity of the business.
Estimated one-off impact on administrative burden
| One-off impact | £ million |
|---|---|
| Costs | Negligible |
| Savings | — |
In this table, ‘negligible’ means below £5 million for one-off costs.
Estimated continuing impact on administrative burden
| Continuing average annual impact | £ million |
|---|---|
| Costs | 9 |
| Savings | — |
| Net impact on annual administrative burden | 9 |
This measure will also impact on local authorities, which will need to process reclaims for VAT incurred on the private school placements they fund. The government is undertaking a new burdens assessment and will fund reasonable costs for local authorities. This measure will also introduce some additional cash flow pressures. However, the government expects these pressures to be relatively minor in the context of overall local authority finances.
The government recognises that this measure could impact on the viability of certain private schools and, in some cases, contribute towards school closures. However, historically there has been significant turnover within the sector. Since 2000, average fees in the sector have increased by 75% in real terms while pupil numbers have remained stable, as have total school numbers. But this period has seen an average of 74 school closures and 83 new openings each year in England. This makes it difficult to assess the impact of this measure in terms of additional school closures.
In recent years, around 3% of private schools have closed each year. In the long run, we expect the cost base of the private school sector to be around 12% lower as a result of the VAT measure. This comprises both an expected 5% reduction in costs by schools to moderate fee increases per pupil and a further reduction to accommodate reduced demand (projected to be around 7% in the long term). We expect most of this 12% reduction in costs to occur within schools rather than as a result of school closures, however it is likely that there may be some temporary increase in the schools closure rate over the normal rate during the few years after implementation. The government estimates that this may be broadly equivalent to 100 schools in total closing over the next 3 years in addition to the normal levels of turnover, after which closures would return to historic norms.
Operational impact (£ million) (HMRC or other)
HMRC will incur costs supporting the implementation of this policy. Initial estimates put these at £7 million over a 5 year period, but may be higher when all potential costs have been quantified.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups and stakeholders as well as education departments across the devolved governments.
Further advice
If you have any questions about this change, contact the VAT Reliefs & Financial Services Insurance Premium Tax Team by email: vatonprivateschoolfees@hmrc.gov.uk.