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Lucy Brown
Features Writer
1:00 AM 3rd February 2025
family

VAT Hike Hits Home For Parents And Schools

Image by đź‘€ Mabel Amber, who will one day from Pixabay
Image by đź‘€ Mabel Amber, who will one day from Pixabay
This month has seen the introduction of VAT on school fees, which has had serious implications for both fee payers and the schools themselves.

The Government pledges the money raised from the VAT hike will be used to fund improvements in state schools, but the feedback independent accounting firm Saffery has received, from both parents and the schools it advises, is that there is a lot of scepticism when it comes to how this will materialise.

Sally Appleton is a partner at Saffery in Leeds, she said:
“The swift implementation of the change in policy has given schools and parents little time to prepare for such wholesale changes.

“Schools have been keen to give fee payers a clear idea of how much extra money they need to find and have been carefully modelling numbers and scenarios, with varying results. Some schools have had to pass on the 20% with immediate effect this month, whilst others are opting for amounts around 15%-17%.”


It is estimated that charging VAT on private school fees will raise ÂŁ1.7 billion a year by 2029/2030 which has been earmarked by the Government to recruit new teachers and drive up standards in the state system, but a recent survey by a wealth management firm estimates that more than 80,000 children could be pulled out of private schools between now and the end of the academic year due to affordability. Some schools will inevitably have to close or merge in order to survive.

Sally added:
“Private schools haven’t been the preserve of the uber wealthy in Yorkshire, and many families have already been making substantial sacrifices to pay fees out of post-tax income, in many cases due to the perceived failings in the state system. For families with more than one child at private school and those that board, the hefty increases will be particularly hard, and many families are making sudden and difficult decisions with regard to their children’s education.”


Every year, the Independent Schools Council (ISC) publishes average fee data in its annual census. For the 2023/24 academic year the average day school fees were £18,000 per year – which was an 8% rise on the previous academic year. It is estimated that if schools eventually pass on the full 20% cost, the average day fee could increase to around £21,600 per year or for a 14% increase it would equate to an average annual cost of £20,520.

Sally added:
“It’s clear this headline grabbing policy has divided opinion, and only time will tell how many children will make the move back into the state system. The VAT hike follows previous fee increases as private schools had to factor in high inflation and increased contributions to the Teachers’ Pension Scheme. In addition, the recent removal of business rates relief, a valuable relief for charities, will add hundreds of thousands of cost to schools in many cases.

“Moving forward, much more clarity is needed when it comes to the impact on children with special educational needs and disabilities (SEND) and children whose parents are in the Armed Forces, as well as those that receive bursaries and scholarships. Schools may be forced to cut back on these supportive measures to help balance the books.”


Saffery has created a guide to VAT on private school fees that covers what VAT is now applied to, how it applies to boarding, how it’s recoverable on expenditure, if VAT can be recovered on previous capital expenditure projects and clarification around fees paid in advance, as well as VAT charged to parents who are based overseas and the effect on bursaries and discounted fees.

Sally added:
“Our specialist VAT team has been busy helping schools review the relevant contracts from a VAT perspective, determining the correct VAT exposure, analysing input tax recovery and advising on the software changes required so that schools can report the input and output tax correctly. We have also been helping schools review their budget models for future years, taking into account both the VAT payable and the VAT recoverable as a result of the changes in order to safeguard, where possible, the future financial stability of private schools moving forward.”


The guide can be accessed here.