A technical consultation on the VAT and business rates changes affecting private schools

Following our article last month regarding the proposed removal of VAT exemption for private schools and the subsequent success of Sir Keir Starmer’s Labour party at the latest general election, the government has now published a technical consultation on the VAT and business rates changes affecting private schools.

The technical note explains that ending the VAT exemption and business rates for private schools is a ‘tough but necessary decision that will secure additional funding to help deliver the government’s commitments relating to education and young people’. The following proposals are made:

• The government will open 3,000 new nurseries to help parents return to work.
• The government will roll out breakfast clubs to all primary schools.
• The government will recruit 6,500 new teachers and improve teacher and head teacher training.

The government estimates that the change will raise up to £1.5bn for state sector investment. 

As a starting point, it is worth noting that the VAT policy change will affect private schools across the UK. The business rates policy change will only impact private schools in England, as this is devolved.

The removal of VAT exemption

As of 01 January 2025, all education services and vocational training supplied by a private school, or a ‘connected person’, for a charge will be subject to VAT at the standard rate of 20%. Boarding services closely related to such a supply will also be subject to VAT at 20%. Any fees paid from 29 July 2024 pertaining to the term starting in January 2025 onwards will be subject to VAT, for the portion of the fees that covers the period from 01 January 2025.

The policy intention is for nurseries to remain exempt and for the fees of children in the first year of primary school in a private school upwards to become taxable – that is, from reception onwards in England and Wales.

Education and vocational training provided either at sixth forms attached to private schools or standalone private sixth form colleges will also be subject to VAT. This does not cover general further education colleges, which are classified as public sector institutions. 

Goods and services linked to the provision of education such as school meals, transport, books and stationery (other than boarding) will remain exempt from VAT.

The government advises that private schools who are not currently VAT registered should not register with HMRC as a result of this announcement; further guidance will be published for impacted private schools in due course. HMRC will implement a number of measures to ensure that all private schools can be registered ahead of 01 January 2025, including publishing bespoke guidance products on GOV.UK ahead of 30 October, updating registration systems and putting additional resources in place to help process applications.

Interestingly, where pupils are placed in a private school because their needs cannot be met in the state sector and they have their places funded by their Local Authority, a devolved government or a non-departmental public body, their funder will be compensated for the VAT they incur on these pupils’ fees. As such, in England where pupils are in receipt of an EHCP and attend a private school on the basis that it is named in Section I of their EHCP, and not at parental preference,  Local Authorities will be able to recover the VAT they incur in funding the placement.

Business rates policy change

Schools in England with charitable status are currently eligible for mandatory charitable rates relief of 80% on their business rates. Local Authorities have the additional flexibility to provide a further relief of 20% at their discretion. Around 50% of private schools in England are registered charities and therefore benefit from charitable rates relief. 

The government proposes to remove the eligibility of private schools in England to business rates charitable rates relief and instead require them to pay their full business rates liability. 

The technical note does recognise that there are pupils whose special educational needs (SEN) can only be met in a private school. The government therefore proposes to consider how to address the potential impact of these changes in cases where private school provision has been specified for pupils through an EHCP. However, changes to the charitable rates relief is dependent on a change in legislation that is not expected to be in force until April 2025, and is subject to the legislation successfully passing through Parliament.  

The impact upon pupils with SEN

The technical note goes on to discuss the impacts of these proposals upon those with SEN. It is noted that the government is committed to ensuring that pupils with the most acute SEN are not impacted by this policy. Therefore, Local Authorities will be able to reclaim the VAT they are charged on the fees of pupils who attend private schools by virtue of the fact that it is named in Section I of their EHCP, so long as it is not named at parental preference. The government therefore asserts that ‘this ensures that parents and carers of pupils with an LA-funded place in a private school will not be impacted by this policy change’.

This does, however, fail to acknowledge the fact that there are many children and young people across the UK who attend private schools in order for their special educational needs to be met who are not currently in receipt of an EHCP. Just 7,646 of the 111,154 pupils receiving SEND support at private schools currently have EHCPs according to the 2024 Independent Schools Council (ISC) census.

As such, whilst the government has seemingly attempted to address the impact of this policy upon pupils with SEN, they have entirely disregarded the significant number of children and young people with SEN who are not in receipt of an EHCP. This, coupled with the fact that the government is actively trying to reduce the number of new EHCPs being issued, places these pupils at a substantial disadvantage. 

Children and young people with special educational needs who are not fortunate enough to have the protection of an EHCP will be materially impacted by this policy change. There is a risk that they could face losing their educational placements if their parents are unable find the additional money to continue to fund their placement. There is mention within the impact analysis of an expectation for private schools to take steps to minimise fee increases, although it seems unlikely that private schools will be able to afford to do so, particularly if there is a possibility of them losing pupils as a result of this change. The active cuts to the number of EHCPs being issued will also mean that it will be even more difficult for a child to obtain an EHCP, especially one that names an expensive private school placement within Section I.

If your child is not currently in receipt of an EHCP and/or you are currently funding a private school placement for a child with SEN, please contact our education law team today. We would advise you to urgently apply for an EHCP to try and mitigate the impacts of these policy changes upon your family. Our team of experts specialise in supporting families throughout the EHCP process and will be able to assist you to obtain a fully-funded EHCP for your child. 

If you would like to discuss your matter with one of our specialist solicitors, please contact us on 0333 202 7175 or alternatively via email at education@hcbgroup.com.