What are different schools doing with VAT?
What proportion of VAT are schools passing on to parents?
This article does not set out to argue in favour or against the introduction of VAT on private school fees. Using specific examples, it hopes to provide colour on the government’s decision within the context of how different independent schools are reacting to the news.
Unless you’ve been living under a rock, you’ll know the Labour government has announced the addition of VAT onto private school fees from January 2025. A key promise in Labour’s manifesto, the announcement came as no surprise to those in education; rumours had been swirling for months before the election was called - education conferences were discussing the possibility of the ruling as far back as Autumn 2023.
The government plans to use the funds to recruit 6,500 new teachers into the state sector. Bridget Phillipson and the Department for Education have been determined, despite growing legal challenges, to introduce VAT within the school year, prompting concern for parents about its impact on children moving schools midyear.
The rapid introduction of the tax means schools have had little time to decide what proportion of the VAT addition they’ll be passing onto parents; HMRC guidance only appeared in early October and the date of the recent budget means schools have had to make unfunded and opaque financial decisions in the meantime. Whilst fees are paid termly, 3 times a year, VAT is paid quarterly; for smaller schools that will present real cashflow problems. The DfE have made it incumbent on each private school to determine its own rule as to what it decides to do, which has made the eco-system only more competitive and unclear for parents.
What percentage of VAT are schools passing on to parents?
There are mitigations schools can make around depressing the impact on VAT. They are able to recover VAT paid on goods and services related to their taxable supplies; Eton College for example are in line for a nearly £5m windfall on reclaimed VAT from capital projects. They can reduce surpluses or cut back on non-essential expenditures, while some of their parents will not be subject to the increase – military and foreign office officials two examples.
Deciding what proportion of VAT they want to pass on to parents has caused as much angst as the wider policy itself. Whilst the average amount of VAT passed onto parents ranges from 12 – 16%, a almost cloak-and-dagger environment has taken affect amongst schools who seek to remain competitively advantageous to competing neighbours.
Broadly speaking, the bigger schools will pass on a great percentage of VAT to parents; they are safer, more competitive, their client base more price inelastic. The smaller schools will absorb a greater proportion to remain competitive, whilst schools will pass on to parents a higher proportion of VAT the higher up the school you go – the parents of sixth-form students will be most affected.
Eton College and Giggleswick School are two bookends. Eton will pass the full 20% onto parents whilst Giggleswick have absorbed the full amount – you can hear headmaster Sam Hart discuss that decision here.
Wycombe Abbey have said they will pass on 15% though they are now reviewing this decision considering the budget and increasing national insurance contribution. Radley College are imposing 12.6% on to their parents, whilst Winchester College are absorbing even more of the costs to remain competitive.
Sevenoaks School have a tiered approach reducing the imposed 20% to 12% for Lower and Middle School day fees, 14% for Sixth Form day fees and 15% for all boarding fees. Wellington College will reduce fees by 5% to absorb some of the 20% VAT, although from September 2025, fees will return to the previous amount. Latymer Upper have also decided to impose a tiered approach to its students up the school not imposing the entire amount either.
In the prep sector, there’s similar divergence in the decisions made. Summer Fields are absorbing 5% of the fees to push 15% of the fees to parents, whilst at the Dragon School the overall cost to parents is likely to increase by around 16.5% versus last term’s fees; they will then revert to setting new termly fees from September 2025. Notting Hill Prep in London have decided to increase fees by 8% for Spring and Summer terms 2025 and then a further 6.5% in September 2025 – that transparency a good example of allowing parents to plan financially for the year ahead.
School Closures
There have been several school closures since the announcement and many being bought up by Private Equity backed groups like Dukes Education and Inspired. Cedars School, St Joseph's Preparatory School in Stoke-on-Trent, Kilgraston School in Perthshire, as well as Alton Hall in Hampshire and Downham Prep School in Norfolk have all announced closures, siting the VAT imposition as a factor. The Guardian newspaper however says that although 46 schools have closed, 77 have opened; the addition of VAT they argue is not to blame for any closures.
The list above is of course non-exhaustive but provides evidence of possible new battle lines being created across the independent sector. Information that makes up this article on specific schools’ VAT decisions have been made public in advance of this article being written.