VAT on private schools: What impact could the fee tax hike have on state and private schools?

• From 2025, private schools will have to start paying VAT on their fees, after previously being exempt.
• The government says the money will go towards improving state schools.
• Some private schools are responding by putting up fees, sometimes by the full 20%.
• This has left many families, including those in the military and those with SEN children, fearing they will be priced out.

The government will soon be closing what it describes as tax loopholes for private schools, to benefit of state-funded schools.

The move was one of the Labour party’s key education pledges before its July election win . At the moment, private schools don’t have to pay the standard 20% VAT - or value added tax - on fees they charge, and those that operate as charities are eligible for an 80% discount on the rates they pay on their premises. But next year this will all change, with private schools having to pay VAT from January, and their charity rates relief ending in April.

Some have raised concerns that the costs will be passed along to parents and families already contending with pricey private school fees. But the government maintains that the impact will likely be minimal, but will make a huge difference to young people at Britain’s state schools.

But what impact could the change have on private schools, and on public ones? Here’s what you need to know:

What impact could it have on private schools and families that send their children to one?

A large concern for many is that private schools will put their fees up to compensate, rather than just absorbing the cost themselves. Eton College - one of the UK’s best known and most prestigious private schools - has said it will increase its fees by the full 20% according to The Guardian, from £52,749 per year to about £63,000.

Not all parents with children who attend private schools are necessarily extremely wealthy, and the Telegraph says that by some estimates, tens of thousands of families may be priced out. Some schools have claimed they may have to drop bursaries they pay out so that less privileged children can attend, while at least one Catholic private school has said it will be closing its doors altogether due to the move.

Legal challenges are also in the works, on behalf of both military families who frequently send their children to boarding schools, and families of SEND (special educational needs and disabilities) children - who say state schools often don’t meet their child’s learning needs.

In a blog post responding to these concerns, the Department for Education writes that it doesn’t expect that raising VAT will cause all private school fees to go up by 20%. “This is because private schools, like other businesses, don’t have to reflect the VAT increase in the amount fee payers are charged. We expect that private schools will try to minimise any fee increases.”

For SEND pupils, the government says their fees will not be affected by the increase if they need a local authority-funded place in a private school for specialist support, which can’t be provided by state-funded education. This is determined by the advice in their education, health and care plan (EHCP), which local authorities create after assessing a child’s needs.

However, if parents choose to send their child with SEND to a private school, VAT will be applied to their fees, they add. “We are committed to making sure high-quality education is available for every child, and will make sure there is earlier intervention in mainstream schools so that children with less complex needs can get the help they need.”

The government added that it would “closely monitor” the impact of the policy change on affected military and diplomatic families too.

What impact could it have on state schools and their pupils?

Improving the UK’s state-funded schools is the main driver behind the move. The government says extra cash - which it says will equate to between £1.3 and £1.5 billion a year - is essential to creating better outcomes for the nine-out-of-ten children who attend Britain’s state schools.

The finer details of how exactly the extra funding will be spent will be finalised in the next budget - due at the end of October. But Chancellor Rachel Reeves has said some could go towards recruiting and training thousands of new teachers, the BBC reports, while other government pledges that will need funding include free school breakfasts, mental health support in schools, and more access to sport and the arts.

Some have raised concerns that due to fees going up, more children might move out of private schooling and into state schools - increasing pressure on them. Some councils, like Somerset, have told the BBC that they have already seen a rise in the number of parents making enquiries about moving their children into public schooling.

But the Department for Education once again says it believes any impact would be small. “Over the last few years, the number of pupils enrolled at independent schools has remained largely the same, even when fees have increased by more than inflation,” they wrote. “Because of this, we expect the number of pupils who might decide to change schools to a state school from private schools to be minimal.”

There were more than likely enough state school places available for those pupils that did move from their private school, they added. As of last year, 83% of primary schools had unfilled places - the highest rate in a decade - while 77% of state secondary schools also had unfilled places.

What do you think about the impact the extra levies could have on private schools in the UK? Have your say and make your voice heard by leaving a comment below.