VAT on UK Private School Fees: What It Means and How to Prepare

Big changes are on the horizon for parents with children in private schools. The UK government’s proposal to introduce VAT on private school fees could affect thousands of families and businesses. As a small accountancy practice, we’re already receiving questions from clients about how this will play out, who will be impacted, and what—if anything—can be done to mitigate the financial hit.

In this blog, we’ll break down the key points, how this might affect you, and what steps you should take to stay ahead of these changes.

The Proposed VAT Change: What’s Happening?

The UK government’s plan to impose a 20% VAT on private school fees from 1 January 2025 is a major departure from the current system, where many independent schools enjoy tax-exempt status as registered charities. The aim of the change is to fund 6,500 new teachers in England, but, if enacted, will increase costs for parents and make it more expensive to educate children privately.

For parents, this could mean thousands of pounds in additional fees annually. For the schools themselves, it could lead to reduced enrolments as some families seek alternatives in the state sector, not to mention the additional VAT compliance burden.

Who Will Be Affected?

The introduction of VAT on school fees will have wide-ranging impacts on several groups, including:

• Parents and Families: If you’re already paying private school fees, you’ll need to prepare for a steep increase in costs. For families managing multiple children’s education or living on tight budgets, the additional 20% VAT could push private education out of reach.
• Independent Schools: Many private schools may see a drop in enrolments, as parents seek more affordable options. Smaller schools could feel the pinch more acutely, with some potentially facing financial instability if enrolments decline sharply.
• Businesses in the Education Sector: Any businesses connected to private schools, such as extracurricular services, tutoring, or uniform suppliers, may also be indirectly impacted by reduced disposable income among families.

For parents who own small businesses, managing cash flow and tax planning will become even more crucial as they juggle increased personal and educational expenses.

When Will These Changes Take Effect?

It is understood that the measures will take effect from 1 January 2025, although there will be more clarification following the 2024 Autumn Budget on Wednesday 30 October 2024. Previous information published on 29 July 2024 left many questions unanswered and there is growing pressure for the government to defer the change until September 2025. Regardless, Parents, schools, and businesses in the education sector should begin planning now to ensure they’re prepared for the extra costs when the policy comes into effect.

How Will VAT Be Applied?

VAT will be applied to private school tuition just as it is for most goods and services—meaning a 20% charge will be added to the cost of school fees. Schools will be required to register for VAT and adjust their billing accordingly. For many, this will mean upgrading their accounting systems and VAT compliance processes.

If you’re a small business owner, especially in the education sector, it’s worth thinking about how these changes might affect your customers and whether you need to adjust your own VAT registration or invoicing practices.

Can You Avoid or Mitigate the Impact of VAT on School Fees?

Unfortunately, for most parents, there are limited ways to completely avoid this increase. However, there are a few strategies that might help ease the burden:

• Bursaries and Scholarships: Some schools offer means-tested bursaries or scholarships, which could partially offset the rise in fees. Parents should explore whether they qualify for financial assistance.
• Tax-Efficient Savings Plans: Consider utilising tax-free savings vehicles such as ISAs (Individual Savings Accounts) to build up a fund for school fees. While it won’t eliminate the VAT, it can help spread the financial load over time.
• Employer Contributions: Some businesses offer education allowances or salary sacrifice schemes to help cover school fees. If you’re a small business owner, it might be worth exploring ways to structure payments for your children’s education through your company, but be mindful of tax rules.

For schools and businesses, mitigating the effects of this change will come down to good financial management. Schools, in particular, may need to re-evaluate their operational costs and consider passing on only part of the VAT charge to parents to remain competitive.

How Our Accountancy Practice Can Help

As a small accountancy practice, we understand the pressures our clients face, whether they’re individuals, small business owners, or independent schools. Here’s how we can support you through these changes:

• VAT Planning and Compliance: If you’re a school or business, we can help you set up proper VAT systems and ensure compliance with the new rules. Our team will assist with VAT registration, financial forecasting, and ongoing compliance to ease the transition.
• Personal Financial Planning: For parents and individuals, we offer expert advice on how to structure your finances in a way that minimises the impact of increased school fees. This could include tax-efficient savings, exploring trust structures, or reviewing your overall financial plan.
• Business Advice: If you’re a small business owner, particularly in the education or services sector, we can help you adapt to changing market conditions. We offer tailored guidance on VAT planning, cash flow management, and adjusting your pricing strategies to maintain profitability in a shifting landscape.

The Road Ahead

The introduction of VAT on private school fees is set to be one of the most significant tax changes to impact the education sector in years. While it may feel overwhelming, with the right planning and support, you can manage the transition smoothly.

As always, we’re here to guide you through these challenges. Our practice specialises in supporting individuals and small businesses, so whether you’re a parent concerned about rising costs, a school grappling with VAT compliance, or a business looking to adjust to new market realities, we’re ready to help.

Reach out to us today to schedule a consultation, and let’s ensure you’re prepared for what’s to come!