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The addition of VAT to private school fees has been a fixture of Labour’s tax policy since 2017 and the party has made it clear that it will implement this as soon as possible after winning a majority in Parliament. 

So far, Labour has not confirmed exactly how, when or at what rate VAT will be applied to private education. Full details are due to be announced in its first budget, which is likely to be held in the autumn, but Labour’s manifesto and statements during the General Election campaign have given some indication of how its plan will unfold. 

Firstly, it has been stressed that VAT will not be applied to private school fees with retrospective effect, with Labour stating that the new measure will not be introduced until at least 2025. These comments indicate that private schools might not have to charge VAT until the new school year that begins in September 2025, but the effective date will not be confirmed until Labour releases the firm timetable it has promised to publish after the General Election. 

At this stage, there has been no comment on whether the new government will move to block arrangements to prepay future school fees on a date before VAT is applied, although it is widely expected that a measure of this nature will be included in its first budget announcements. Sir Keir Starmer has also stated that school fees for children with special educational needs and disabilities will still be relieved from VAT to some extent, although this may be restricted to pupils whose private school places are funded by the state through education, health and care plans. 

Removal of the current VAT exemption from private education will of course have major ramifications for independent schools and their pupils, most obviously in that it is expected to suddenly be more expensive to send children to private school. However, the removal of the VAT exemption will also allow independent schools to offset VAT they incur on costs against the VAT charged on their fees, which may mean that the VAT due on private education might not be passed on to parents in full. There may also be scope for large refunds for private schools that have undertaken significant capital expenditure in the past ten years.

Independent schools should assess the potential impact of this change to determine how far they will need to raise their fees, and how much of the VAT charged to parents can be absorbed as a result of an overall lower cost base. Understanding the likely impact of tax changes on their operating model is key to managing delicate communications with parents and guardians.