The Labour Party recently announced their 2024 Autumn Budget, sparking significant public discussion. Among the new regulations is the removal of the 20% VAT exemption for private schools and boarding fees, effective from 1 January 2025. In this article, we explore the implications of this legislation for schools, parents, and the UK education system as a whole.
What is VAT?
Value Added Tax (VAT) is a 20% tax applied to most goods and services in the UK. In the UK, private schools were exempt from paying VAT until 1 January 2025, when this exemption was removed and VAT had to be added to private school fees. The Labour government suggested that they introduce this change to raise additional funds for investment in state schools.
Will private school fees increase?
The extent to which private school fees will rise is difficult to predict. For instance, Eton College has announced it will pass on the full 20% increase to parents, whereas Bolton School has committed to only a 5% rise, absorbing the remaining costs internally. While some schools may absorb part of the cost, most are likely to pass the increase on to parents. The government estimates an average 10% rise in school fees for families.
It is important to note that the VAT applies only to compulsory school education and sixth-form colleges. Nurseries are excluded, and their fees will remain unchanged. Board and lodging fees, as well as vocational training fees at private schools, will also be subject to the new VAT charge.
Certain costs classified as "closely related"—goods and services essential for delivering education directly to students, such as transportation, school meals, stationery, books, and examination fees—will remain exempt from VAT.
The VAT will also apply to fees of students with Special Educational Needs (SEN), except where a pupil’s Education, Health, and Care Plan (EHCP) specifies that a private school is the only viable option to meet their needs.
What is the impact on state schools?
The removal of the VAT exemption is intended to provide additional funding to improve state school education. However, concerns have been raised about potential negative effects on state schools.
The government does not anticipate a significant shift in the number of students leaving private schools for state schools. However, the Independent Schools Council (ISC), representing over 1,400 independent schools, believes the government's estimates are too low. If more students transfer than expected, state schools could face challenges accommodating the influx, potentially leading to larger class sizes and a negative impact on the quality of education.
What are the other consequences?
While the full impact of this change remains uncertain, another policy introduced in the 2024 Autumn Budget—the changes to “non-dom” rules—is expected to have a significant effect. Research by Henry & Partners and New World Wealth predicts that a record high of 9,500 millionaires are likely to leave the UK by the end of 2024.
As a result, an increasing number of families are exploring alternatives to private British education, including online schooling or British education offered overseas.
To assist families in navigating their options, we are hosting a webinar titled “Exploring Alternative Education: Empowering Families in a Changing Landscape.” The webinar will be led by three distinguished industry experts who will help you explore available alternatives and answer any questions you may have.
Date: 26 February, 17:00 GMT
Location: Online
Speakers: James Polansky, Heather Rhodes, Yuliya Kosko
Our first speaker, Yuliya Kosko, co-founded EducAd Consulting after teaching in London. She has helped many students gain entry to top UK universities and advises international high-net-worth families on education from early years to university.
Heather Rhodes is a leading expert in online education. As founding Principal of Harrow School Online, she led students to 78% A*-A results in 2023. She now runs Highgrove Online School, preparing ambitious students for top universities.
James Polansky, CEO of Globeducate UK & Portugal, transitioned from investment banking to education. A Cambridge graduate, he has led schools, advised on mathematics education, and serves as an Independent Schools Inspector and Chair of ISA London West.