Tackling the impact of changes in Independent Schools

Changes impacting independent schools

In the 2024 Autumn Budget, the Labour Chancellor announced the introduction of VAT on independent school fees which took effect from 1 January 2025.

Whilst some schools had fees in advance schemes in place which allowed parents to pay a proportion of education fees in advance without incurring VAT on those fees, the government announced that any fees paid from 29 July 2024 relating to the term starting in January 2025 and onwards would be subject to VAT. This meant that many parents hoping to make payment in advance ahead of the implementation of VAT were no longer able to do so.

In addition, since April 2025 independent schools which are charities have lost charitable business rates relief, which provided an 80% discount on the rates paid on their premises.

The impact of these changes

The impact of the introduction of VAT on private school fees has been widely reported.

Whilst the government reported that evidence shows that raising VAT on private schools will have limited impact on the number of pupils enrolled, the increase in fees that parents have faced has in many cases been more than can absorbed, particularly being introduced at the most disruptive time (part way through the school year).  This has already led to children being withdrawn from school and, according to Department for Education statistics, 77 independent schools closing since the VAT announcement.

A group of children, parents and independent schools made an application to the High Court against the Government on behalf of seven children attending independent schools who would now struggle to afford the higher fees. The claimants’ parents enrolled them at independent schools for reasons including bullying; their religious beliefs; and the children’s special educational needs.

Whilst the potential impact of a successful challenge was limited in scope, it was seen as an important test of the Court’s broader stance in respect of VAT on independent school fees. The group lost their High Court bid, with the Court stating that ‘the European Convention on Human Rights did not protect the ‘right’ to pay school fees at a particular level’, and ‘private school fees are set independently of government and are inherently subject to market forces’.

Annual school fees have already increased significantly in recent years and with a further 20% increase in school fees mid-way through the academic year, many children will inevitably be seeking places in local state schools. The real test will be the impact over the next few years as parents will be reluctant to remove their children part-way through their education.  The impact is particularly prevalent for small preparatory and girls’ schools, some of which are joining larger school groups, changing their intake, or in some cases closing completely.

How we can support you

Fees in advance schemes may still be a useful tool for both parents and independent schools. For parents, they offer an option to secure upfront education fees for their child with estimated fee increases built into the cost, but usually with a discount applied in return for the upfront payment. For schools, fees in advance schemes offer a means of receiving bulk payments of fees which can, for example, be used for capital projects and improves financial stability.

However, schools should be conscious of the formalities of setting up a fees in advance scheme. We can support independent schools to prepare new fees in advance scheme terms and conditions, or update their existing terms and conditions, to ensure that they are compliant including in relation to refunds and in situations where the school merges or closes.

We can also support schools to update their parent contract to ensure that it aligns with best practice and protects the school, which is particularly important given the significant changes which have recently impacted on the sector. This includes ensuring that the parent contract includes provision in respect of VAT.

Furthermore, if you school is considering other avenues of fundraising, such as hire of facilities or collaboration with other schools, we would be pleased to provide advice on the formalities and implications, and support with preparation of hire facilities agreements and collaboration agreements, which comply with requirements placed on independent schools.