In a major shift for the education sector, independent schools in England will soon face Value Added Tax (VAT) on their fees. Starting on 1st January 2025, this change is part of the government’s strategy to support state education.
Currently, independent schools benefit from tax exemptions, including no VAT on fees and charitable business rate relief, which provides an 80% discount on business rates. These advantages have helped make independent education more accessible for many families.
But from 2025, this is set to change:
The government’s goal is to generate additional funds to support state education, including hiring 6,500 new teachers to reduce class sizes and improve educational outcomes. The VAT collected from independent school fees will directly fund these improvements.
The introduction of VAT will likely have a significant impact on families. Currently, the average annual cost of independent schooling is £16,656, and with the new 20% VAT, parents could face an additional £3,331 per year, bringing the total to nearly £20,000. However, not all independent schools may pass on the full cost to families. In fact, one independent school in Essex, so our sources tell us, is passing on just 12% of the increase to parents.
Schools losing their business rate relief will also face increased operating costs, potentially passing these expenses on to families through higher fees, too.
However, independent schools can plan ahead now for these changes and speak with one of our education financial experts to explore different ways to manage these rising costs effectively.
Independent schools can mitigate some of the rising costs by registering for VAT with HMRC and claiming VAT on expenditures. For example, designing a new independent school website could lower operating costs, which, in turn, may help reduce fee increases for parents.
As fees rise, some families may find independent education unaffordable, leading to a shift toward state schools. While birth rates are declining, which could absorb some of the influx, maintained schools may still see an increase in enrolment.
To remain competitive, state schools should consider investing in marketing and branding, improving their school websites, which can help increase pupil enrolment, and focusing on parental engagement to meet the expectations of families transitioning from independent education.
While the main points of these changes are clear, full details will be confirmed in the government's October budget. This will provide further clarity on how independent schools will need to adapt to these reforms. You can also stay informed on the latest news in education finance by following us on LinkedIn.
Independent schools and families need to prepare for these changes well ahead of January 2025. Schools should explore ways to offset additional costs, and families should be aware of the financial implications.
If you are worried about the rising VAT and its impact on your school’s budget, you may want to speak to a finance expert to review your options and find savings in other areas of your school expenses to recover costs.
Get in touch for a free consultation with one of our school finance experts.
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