As the new year unfolds, the Government's plans to introduce VAT on independent school fees have come into effect.
With any major change, questions naturally arise. The existing VAT legislation wasn't originally designed with education in mind, and as schools work to implement the policy, they are seeking guidance from HMRC on certain aspects. VAT specialists anticipate a learning period of one to two years before schools become accustomed to VAT compliance, with potential adjustments along the way.
Throughout this time, Leweston School has diligently communicated with parents in a transparent and sincere way, ensuring that the school community stays informed and ready for these changes.
We've gathered the key points and common questions into a set of FAQs available below.
Why is this happening?
During the 2024 election campaign the Labour Party announced their intention to remove the tax exemption currently applied to education and boarding fees charged by independent schools and remove charitable business rate relief.
This policy was expected to start from September 2025 but on 29 July, the new Government issued draft legislation indicating that VAT will be applied to fees from 1 January 2025 and business rates relief will end in April 2025. There was a consultation, which we contributed to, on the format that this implementation would take and also a chance to discuss exemptions and to argue against the policy. The result of this was presented in late October 2024 and resulted in no change to draft legislation.
What impact will this have on school fees?
Independent school fees from 1 January 2025 (Spring Term) will have VAT applied at the standard rate of 20%, this is a legal requirement. HMRC will require the school to make a tax return on a quarterly basis which confirms the total amount of tax due, which is then paid to HMRC.
The Government have stated that they do not expect fees to increase by 20%. They have maintained that schools are in a position to absorb some or all of the tax bill levied against them. On announcement they predicted that fees would rise by around 10%. In reality most schools, being charities and reinvesting any surplus into the school, are not in a position to do this and nationally fees have risen by an average of 14% in January 2025. In our area, fee rises range between 10% and 20% with 15% being typical.
Leweston has very limited scope to mitigate the impact of VAT. Providing the standard of education we do now does not generate significant surpluses and the imposition of VAT mid-way through our academic and financial year means we anticipate that we will have a deficit budget this coming year.
The Governors made the decision to reduce the headline fees for Spring and Summer 2025 as far as possible which resulted in a net increase of 15.8%. This means that, in reality, the school is receiving less revenue than expected for the remainder of the academic year.
Why can’t you reduce spending further and pass on more?
The Senior Management at Leweston work hard to ensure the school operates as cost effectively as possible. The school had moved from a significant deficit to small surplus over the past five years as a result of careful management and targeted investment. It is this approach that has allowed us to absorb some of the tax liability whereas some other schools have been forced to pass on the full 20%.
The introduction of VAT mid-way through the financial and budget year has made things more challenging. Adjustments can, and have, been made and there will be a significant review of the budget for the academic year 2025/26, however, we have to ensure that the quality of education that we provide continues to meet our families' requirements. Our teachers and staff are our most important asset, and this is reflected in the fact that 75% of our expenditure is on our people. It is they who make a genuine difference to our pupils’ educational experience. We have a beautiful campus with a wide variety of school buildings, many of them dating back more than 100 years. It is important that we ensure these buildings are in a fit condition for first class teaching and learning, compliant with health and safety standards and sustainable.
Who does this affect?
VAT will be applied to school fees from Reception to Year 13. Nursery fees remain exempt from VAT.
What will VAT be applied to?
For independent schools VAT is complicated. There are elements of the provision that now attract VAT in full, there are elements that are classified as ‘exempt’ (which means that we do not have to charge VAT but cannot reclaim any VAT paid on costs) and there are elements that are zero rated (which are not taxed but we can claim credit for any VAT paid). The wealth of different types of tuition, clubs, activities, materials, trips and so on need to be categorised and assessed on an individual basis according to the relevant classification. In short, VAT at standard rate will be applied to tuition fees, boarding and extra lessons. Exemption does still apply to some items closely related to education such as examination fees, books and stationery.
What about food?
School lunches are exempt from VAT however breakfast and supper are not as they are classified as part of boarding and lodging. Some day schools are providing a separate charge for lunch however savings involved in this are negated as separating these costs creates extra complexity and administration. For this reason lunches will continue to be part of the school tuition fees.
Will VAT be charged on transport to and from school?
No. Transport to and from school that is provided by the school will not be subject to VAT.
What will happen to individual lessons such as music and drama?
Tuition of any kind provided by the school is subject to VAT. The school is looking at its contractual arrangements with third party suppliers in the activities programme and there may be future adjustments but music and drama lessons are provided by school staff and are therefore now subject to tax. To try to mitigate the impact on parents the school has absorbed 10% of the VAT for the Spring and Summer terms. This means that the charges to parents have increased by 10%.
Will VAT be charged on school trips?
No - school trips will be either VAT exempt where there is an educational element or subject to a scheme that only applies VAT on any profit retained by the school as our trips are offered at cost no VAT would be accounted for on these trips.
How does this affect pupils with SEND?
If a parent is paying the school fees, then these are likely to be subject to VAT. Only pupils who have an EHCP which demonstrates that the child’s needs cannot be met by the state sector will be exempt. If additional learning support is paid for separately by parents, this too will be subject to VAT.
Will military/diplomatic families who receive the Continuity of Education Allowance receive an exemption from paying VAT on school fees?
There is no exemption for forces personnel, however the Continuation of Education Allowance has been increased by just over 12 per cent from 1st December 2024 to pay towards the extra VAT cost.
If the school is VAT registered, can it claim back VAT?
The school will be able to claim back some of the VAT it pays to suppliers but the majority is likely to be at what is called ‘standard rate’ which means approximately 80% of the 20% can be recovered. It must be remembered that most significant costs to the school are salaries where there is no VAT to be recovered. In real terms recoverable VAT is limited but the school will reclaim everything it can.
What will my bill look like?
The fee notes issued for the Spring Term 2025 showed charges inclusive of VAT. At time of issue the school was not yet registered for VAT and therefore could not legally issue a VAT invoice. The school received its VAT registration number in the first week of January and parents now will receive a VAT invoice for the Spring Term on receipt of payment.
Moving forward, the school will publish fees on the website as inclusive of VAT to enable parents to understand clearly what the actual cost to them will be but parents will receive a VAT invoice on a termly basis.
How does this work with pupils who receive a remission?
VAT is applied to the amount invoiced to the parent so any parent in receipt of a remission will have this applied to their bill as previously before the VAT is calculated.
What about the reported legal challenge?
Leweston is a member of the Independent School Council (ISC) and the Independent Schools’ Bursars Association (ISBA) which are making representations to the government about the impact of VAT on school fees on behalf of the sector as a whole. The ISC, an umbrella body for seven associations representing independent schools, has voted to take legal action against the government’s decision to levy VAT on independent school fees. We will be watching any developments in the case closely. However, the legislation will stand whilst the challenge progresses through the court system. Should there be any future adjustments these will be applied retrospectively.
Will the introduction of VAT have a negative impact on the quality of education at Leweston?
We believe that we have shown ourselves in recent times to be resilient, creative and flexible in how we manage our school. We were proud with how we navigated COVID, and we hope that our response to the pandemic proves our ability to progress and improve our provision even when facing challenges. Our current Strategic Development Plan comes to an end this academic year and work is well underway on developing the strategy for the next three-year period which will be shared with parents when finalised. Whilst future plans will, clearly, have to work within the new landscape for independent schools we will continue to offer the excellent education that Leweston provides, as well as embrace the new opportunities that the future brings.