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Private schools to charge VAT from January as Reeves closes payment loophole

by July 30, 2024
July 30, 2024
Private schools to charge VAT from January as Reeves closes payment loophole

The government has announced that from January 1, VAT will be charged on private school fees, and parents will not be able to avoid the tax by paying in advance.

The new tax will apply immediately to any fees for the school term beginning January 2025, preventing parents from circumventing the additional cost by paying up front. This move comes after the popularity of pay-in-advance schemes rose sharply, as private schools anticipated a Labour government.

To close this loophole, ministers have introduced anti-forestalling legislation, covering all fees paid from July 29 to the budget on October 30.

Chancellor Rachel Reeves stated that the revenue generated from this tax would be used to fund 6,500 new teachers. However, private schools criticised the decision, warning that it could lead to more children transferring to the state sector as parents struggle to afford the fees.

According to the Independent Schools Council (ISC), there are 554,316 children enrolled in private schools in the UK, equivalent to 5.9% of all pupils.

“Thousands of children face having their education disrupted as a result of this unprecedented tax,” said Julie Robinson, chief executive of the ISC. “It will increase pressure on state schools and an already-stretched SEND system, as well as on faith provision, specialist arts education, and military families.”

“The draft legislation was published before consultation with independent schools. We will work to engage the government on the consequences of this policy on schools, families, and communities. We believe the best way to improve education for all is for schools to collaborate, not to tax education.”

According to the ISC, annual fees for private day schools average £18,064, but can rise significantly for elite boarding schools. Brighton College, the most expensive private school in the country, costs almost £65,000 a year, meaning parents will face an additional VAT cost of £13,000.

Under Reeves’s plans, local authorities that fund students with special educational needs to attend private schools will be reimbursed for the VAT cost.

The Chancellor also announced that private schools would have to pay full business rates from April 2025. Previously, independent schools were eligible for an 80% charitable rates relief.

Education Secretary Bridget Phillipson has said the combined taxes would raise £1.7 billion per year, although research by HM Revenue & Customs under the previous Conservative government estimated it would bring in just £650 million a year.

Polling by YouGov shows that 60% of voters support charging VAT on private school fees, compared with 24% who oppose it.

However, senior Conservative MPs criticised the tax increase. Shadow Home Secretary James Cleverly stated on Twitter/X that it was “an ideological decision” targeting “small independent schools.” He added, “Don’t let them spin it as a necessity. It’s the politics of envy.”

Notably, Sir Keir Starmer’s cabinet has the lowest proportion of privately educated ministers in decades. Only two of the 25 cabinet ministers attended independent schools for most of their education, equating to 8% of the cabinet compared with a national average of 6 to 7%.

Reeves, who attended a state school in south London, has previously described her satisfaction in outperforming privately educated boys at chess tournaments during her school years.

“There were two things I always wanted to prove: that a girl could be just as good as a boy, but also a girl from an ordinary background could be just as good as a boy from a more privileged background,” she said last month.

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Private schools to charge VAT from January as Reeves closes payment loophole

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