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Why is VAT being added to private school fees?

Why is VAT being added to private school fees?

02 January 2025  

VAT is now being added to private school fees after new rules came into force on 1 January.

The government plans to spend the money raised on more teachers for state schools in England.

Private schools say they have already seen a drop in secondary school pupil numbers because of higher fees.


What is VAT and when was it added to private school fees?

Value added tax (VAT), external is one of the government's main sources of income. It is payable on top of the purchase price of many goods or services and the standard rate is 20%.

Previously, private schools did not have to charge VAT on their fees because of an exemption for organisations providing education.

Private school fees are liable for 20% VAT from 1 January.

The government previously said the tax would apply to all payments made for the January term after 29 July 2024.

About half of England's private schools are also charities, so receive an 80% reduction on business rates (taxes on properties used for commercial purposes).

Separate legislation will be introduced to remove this tax relief from April 2025, but plans to remove private schools' charitable status have been dropped.


How will the extra money be spent?

The removal of the VAT exemption is UK-wide, but each nation will decide how to spend the additional money received.

The government estimates that the policy will raise an extra GBP460m in 2024/25, rising to GBP1.7bn by 2029/30.

Chancellor Rachel Reeves said "every single penny" will go to state schools.

Labour has repeatedly pledged to use the money to recruit 6,500 new teachers for state schools in England.

Schools have been struggling to attract and retain qualified teachers for years, especially in subject areas like maths and science.

In October's Budget, the government allocated different sources of funding to address other issues in schools, like crumbling buildings and a stretched system for pupils with special educational needs.

Source: BBC

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