Private school fees VAT hike to take effect on New Year’s Day
Private school fees are to become subject to VAT from New Year’s Day as ministers reportedly draw up plans to handle a potential wave of school closures.
The government’s policy to end the charitable status of fee-paying schools which exempts them from paying 20 per cent value added tax (VAT) to the Treasury as of January 1, 2025.
Chancellor Rachel Reeves announced the measure in the Autumn Budget, which stipulates any fees paid from July 29, 2024, when the policy was first announced by the government, related to the term beginning in January 2025 will be subject to VAT.
The change is expected to raise £1.5bn in 2025-26, rising to £1.7bn by 2029-30, the government says.
English private schools with charitable status will also have their eligibility for business rates charitable rate relief removed from April 2025, bringing the total raised to £1.8bn by 2029/30.
Ministers say the revenue raised will mean thousands of state schools receiving a funding boost next year, with the core schools budget rising by £2.3bn next year, in a bid to deliver the government’s education mission to “break down barriers to opportunity”.
Prime Minister Sir Keir Starmer has pledged to hire 6,500 new teachers, improve school standards and upgrade the Special Educational Needs and Disabilities (SEND) system.
Reeves said: “Ending the VAT break for private schools means an additional £1.7bn a year can go towards our state schools where 94 per cent of this country’s children are educated.”
While education secretary Bridget Phillipson said: “High and rising standards cannot just be for families who can afford them, and we must build an education system where every child can achieve and thrive.”
But warnings have emerged that the government is drafting plans to handle a potential surge in demand for state school places due to concerns over potential private school closures.
According to The Times, officials are preparing for the fact that the decision in the Autumn Budget to add VAT to private school fees could push some schools into financial trouble.
Smaller schools with lower fees are reported to be most at risk, as government sources told the publication that these schools are being closely monitored.
To mitigate potential disruptions, a government source told The Times: “We have to plan for the worst. But there’s a limited amount we can do, so contingency plans are necessary.”