How to deal with VAT on school fees from January 2025

The new Labour Government will be adding VAT to school fees from January 1 next year, which will increase the bill to parents by 20%, unless schools choose to reduce fees another way to reduce the impact of the extra tax.

Private schools have been exempt from VAT on fees for more than 50 years, but the addition from January 1, 2025, has come as a big surprise – the earliest this was expected to happen was in September 2025. This early application of VAT means parents who are part-way through paying for school fees for the coming academic year will suddenly have to find the extra funds with little time to make alternative arrangements.

John Rainsford, VAT Director at professional services and wealth management firm Evelyn Partners said: “This will be a fundamental change to a sector which has always been exempt since VAT was introduced over 50 years ago, pushing up costs and adding a further financial burden to parents. Although schools will be able to offset some of the impact by reclaiming VAT on certain costs, such as utility bills, this will be limited given most costs relate to staff.

“The knock-on impact on the added financial burden for parents and guardians will be significant, who now face an uplift for the [new] term. Many schools have been considering ways to reduce costs, such as being able to recover VAT incurred on expenditure, so that normal annual fee increases can be minimised, which might help absorb some of the added charges when VAT is added.”

What can parents do to help pay VAT on these fees?

The announcement, which was made this summer by the Government, makes it clear that any fees paid before the announcement were exempt from VAT. But any payments made since the announcement that relate to the period from January 1, 2025, will be subject to VAT.

Some schools have already indicated they will attempt to reduce fees by offsetting other costs that are subject to VAT, but the increase will not be wiped out completely.

Mr Rainsford added: “We have not yet seen any changes announced to the ‘Capital Goods Scheme’ which is used to claw back a proportion of VAT incurred on qualifying large capital projects undertaken by the school in the previous 10-year period – such as new classroom accommodation or a new library, which continued to be used post any introduction of VAT. This would require a change to a well-established VAT provision, and it is difficult to see how this would only be targeted to the education sector.”

School fees have already risen

Many private schools have already increased their fees – rises of 6-7% are not uncommon even without factoring in VAT. There was an 8% average increase in the 2023/24 academic year, with the average day school fee hitting £6,021 per term, with the average boarding fee rising by 9% to £14,153 per term, according to Evelyn Partners. This makes a yearly fee of more than £18,000 and £42,459 respectively.

Some schools plan to cut costs by exiting the Teachers’ Pension Scheme, which avoids a 5% increase in employer contributions which came in on April 1, but this would affect teacher pensions. Schools are also looking at making buildings more energy-efficient and scaling back building plans. Other schools are also planning a phased approach by applying the parents’ share of VAT over a set period, such as three years, to give families some breathing space to adjust to the extra costs.

The Government estimates the net cost of adding VAT for most schools would be 15%, and how much of this is passed on to parents will vary from school-to-school. But there are ways for parents to change how they fund school fees to boost their own coffers.

For example, if you haven’t checked that you’re not paying over the odds for your investment funds, then you could be reducing your gains. You could also invest a lump sum in an income fund to achieve a yield to make up the shortfall, and make sure any cash accounts are getting the most in interest. Each of these measures will give you a bit more cash to help fund the extra VAT.

Aside from that, you can look to cut your costs elsewhere. This could be ditching unused subscriptions, and analysing your budget more carefully to see where you can reduce costs. If all else fails, you can ask the school for help. Some will have bursaries or scholarships available to pupils, although many are means-tested.

We can help you meet your obligations

If you want to find out more about how to deal with the VAT that will be added to school fees, please ask us for advice and we can explain everything you need to know.

New Labour Government reveals plans in King’s Speech

The landslide victory for Labour has promised a variety of changes to the way the country is run, and a wide range of these were revealed in the King’s Speech for the State Opening of Parliament. There were around 35 bills announced in the speech, including a new Pension Schemes Bill, Planning and Infrastructure Bill, Great British Energy Bill, Renters Rights Bill, National Wealth Fund Bill, and even a Better Buses Bill.

The Prime Minister, Sir Keir Starmer, detailed in an introduction to the King’s Speech how his Government plans to focus on boosting Britain’s economy, including implementing a plan to prevent the kind of chaos that ensued after the damaging mini-Budget delivered by the short-lived Liz Truss Government.

The Prime Minister said: “This King’s Speech sets out a clear destination for our country. Our plan starts, as it must, with our economy. The economic chaos working people have endured since the mini budget will never happen again with my Labour government. We are introducing a Budget Responsibility Bill to protect taxpayers’ money and people’s living standards. From that foundation of economic stability, we will generate higher economic growth in every community.”

He also highlighted how planning rules will be reformed “to build the homes and infrastructure the country desperately needs”, and workers’ rights are also in the frame for change, “so every person has security, respect and dignity at work”.

The move towards cleaner energy is set to get a boost with the creation of a new publicly owned energy company which “will create a new industrial strategy and invest in cleaner, cheaper British energy; and we will harness the power of artificial intelligence as we look to strengthen safety frameworks”.

He also talked about making sure decisions were being made in Government by people who have “skin in the game” which will help local communities directly.

He added: “Democratic decisions are best made by people with skin in the game, so my government will push power out of Westminster and empower local leaders to deliver for their communities. Local growth plans will make sure that every community can seize the opportunities ahead of us and every person can benefit from higher growth.”

What will the Pension Schemes Bill achieve?

One of the major bills revealed was the Pension Schemes Bill. The bill includes measures to automatically consolidate small pension pots into a single pension to reduce operating costs for the members, which in turn will help improve performance. It also outlines ways to ensure all pension savers are getting value for money from their pension provider.

Pension scheme trustees will also be required to offer retirement income products to pension savers when they reach retirement age, which should help people to make the right decision about how they use their money when the time comes. The bill also aims to change the definition of a terminal illness so pension scheme members can get a lump sum payout earlier.

The response to the plans – many of which continue plans outlined by the previous Conservative government – has been largely positive. Paul Leandro, Partner at Barnett Waddingham, said: “We welcome the new Pensions Scheme Bill announced in the King’s Speech today, particularly the increased focus on pension schemes to offer retirement income products or a range of products. Since the full freedoms were introduced in 2015, the retiring and retired populations have been underserved. This is a positive step towards addressing that gap.

“However, the industry shouldn’t just fixate on building new products. Investment is needed into how the options are communicated to people. Retirement products are essentially pointless if people are not informed about them or engaged with them. Supporting people in how to make choices now and on their retirement journey is crucial.”

Mr Leandro also pointed out that the current level of defined contribution (DC) pensions is inadequate, but that the new bill makes no reference to this, or how to encourage people to save more for their future.

He added: “This is disappointing as it’s clear people are not saving enough for retirement, and even with new initiatives around consolidation and value for money, people will still be left with inadequate pension pots unless they save more during their working lives. This is exacerbated by gender and ethnicity gaps, which frustrating do not seem to be covered in the bill and which is a significant concern in the current pension landscape.”

The Renters Rights Bill

People who rent their property in the private rental sector will also see new protections come into force, creating what is being called a ‘level playing field’ in the rental sector. These include abolishing Section 21 – no fault evictions, with clearer eviction grounds being introduced to allow landlords to regain their properties when they need to.

Other measures will help to empower tenants to challenge unfair rent increases, which have been used in the past to effectively force someone from their rented home by pricing them out of it. New laws will also curtail rental bidding wars between agents and landlords.

Tenants will also have the right to request a pet, something that many landlords will currently not allow, and all landlords must consider this request and not unreasonably refuse it. This change will help those people who are renting but want to live with their furry friends, and previously may have struggled to find an accommodating landlord.

Other measures mentioned

There were many other measures mentioned in the King’s Speech, including the Employment Rights Bill, which will ban “exploitative” zero-hours contracts, create a minimum wage which is a genuine living wage, end the practice of fire and rehire, and introduce basic employment rights from the first day of employment. This is all part of the plan to boost people’s security at work.

The setting up of Great British Energy will also move Britain towards being a clean energy “superpower” by 2030, according to the supporting documents to the speech. This should also help to lower energy bills for households for good over time. This entity would be publicly owned and will “boost energy security, create jobs and build supply chains in every corner of the UK”, the Government said.

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There are many aspects of the King’s Speech that will have an impact on your wallet over time, and we can help you to navigate where you will win and where you will lose. So, if you want to plan for your own or your business finances, then please get in touch with us and we would be delighted to help you.

General Election – what promises are in the manifestoes?

The General Election is days away, and each of the political parties have put out their manifestoes as they try to encourage us to vote for them. At the time of writing, the polls were suggesting a landslide victory for Labour this year, with the Conservatives severely depleted in the number of seats they have in Parliament. But the polls have been wrong more than once, so we will only know exactly what happens when all the votes have been counted.

Each manifesto includes key policies that political parties believe will help them secure the votes they need to get them into Number 10, but there are a number of things that are not completely clear, such as whether Labour intends to raise Capital Gains Tax. There are various policies from each party that will resonate strongly with different people across the country, so let’s take a look at the main ones from the three largest political parties.

What the parties are pitching to you – first, Labour

Labour is planning a National Wealth Fund to invest in projects, such as clean energy, which it claims would create 650,000 jobs. It also plans to reform planning rules to build UK infrastructure, such as railways, roads and 1.5m houses it says the UK requires.

On the financial front, Labour has pledged not to raise taxes on “working people”, so there are no plans to increase National Insurance Contributions (NICs), income tax or VAT. But it will extend the sunset clause of the Energy Profits Levy to provide a windfall tax on energy company profits, which have risen sharply as household bills escalate. It will also cap Corporation Tax at 25% for the whole of the next Parliament if it wins the election, unless tax changes in other countries affect the competitiveness of the UK.

One of Labour’s key policies is to increase investment into the UK, something which has been relatively stagnant since 2016 when the UK voted to leave the EU. This is all part of its aim to create wealth for working people, but there is little detail on how this would be done other than by improving training and education, increasing the productivity of workers as a result.

The plan is for Labour to raise around £8.5 billion as a result of measures within its manifesto, including changing the non-domiciled status of wealthy people, charging VAT on private school fees, and cracking down on tax avoidance. It would also “end the use of offshore trusts” to avoid Inheritance Tax (IHT). This would help to prevent tax avoidance by large businesses or wealthy families who primarily use these types of trust.

And the Conservatives

The Conservative Party has also committed to not increase income tax, NICs and VAT, but it is going one step further and trying to appeal to the self-employed by offering a removal of their main rate of NICs by the end of the next Parliament. It had already removed the need to pay Class 2 NICs for this group of workers in April. In addition, a further 2p cut in NICs for employed workers is designed to tempt the rest of the workforce to vote Conservative.

For older people, there is the promise of a ‘triple lock plus’ which would raise the personal allowance for pensioners in line with the triple lock measures by creating a new age-related allowance. The way Child Benefit is calculated would also change, moving to a household assessment rather than tapering away at £120,000. There is also a plan to cut Stamp Duty Land Tax for first-time buyers by setting the threshold at £425,000, and the Conservatives have committed to not changing SDLT elsewhere. Capital Gains Tax (CGT) would also remain unchanged, with a two-year temporary relief for landlords who sell their property to existing tenants.

Finally, the Lib Dems

The Liberal Democrats – known more widely as the Lib Dems – would “fairly reform” CGT to close loopholes “exploited by the super wealthy”. It also plans to introduce a 4% tax on the share buyback schemes of FTSE 100 companies.

The Lib Dem manifesto also pledges, to raise the Personal Allowance – the amount you can earn before you pay any tax – when the economic climate allows, although it did not state by how much. It would also increase the Digital Services Tax on social media and other tech giants from 2% to 6% and reverse the Conservative cuts in the Bank Surcharge and the Bank Levy, all of which would help fund its investment plans.

One measure which could prove popular is the pledge to turn water companies into public benefit companies by banning executive bonuses until sewage discharges and leaks end and creating a powerful new regulator to replace Ofwat with powers to prevent sewage dumps.

The polls are suggesting a landslide victory for Labour, with the Conservatives predicted to win the lowest number of seats in their history, and Rishi Sunak facing the prospect of being the first sitting Prime Minister in history to lose his seat at a General Election. But we will only know the result once all the votes have been counted, and the pollsters have had plenty of egg on their faces before. So, by July 5, we will know which party is going to be in government for the next Parliament.

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There are many variations in the manifesto plans of the main parties, but how many of these result in actual tax changes that will affect you and your business remains to be seen. So, if you want to plan ahead and prepare your own or your business finances no matter who is in power, then please get in touch with us and we would be delighted to help you.