When will VAT be added to private school fees?

Chancellor Rachel Reeves has confirmed plans to remove the value added tax (VAT) exemption for private schools in the autumn Budget.

The government says the money raised will help fund 6,500 new teachers in England.

VAT at the standard rate of 20% will be added to private school fees from 1 January 2025.

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

Private schools - sometimes called independent schools - charge fees to most of their students.

While some famous schools, like Eton and Harrow, charge about £50,000 a year, the average across the UK is about £15,000.

There are about 2,500 private schools in the UK, educating about 7% of all pupils, including about 570,000 in England.

Private schools have more freedom than government-funded state schools, so do not have to follow the national curriculum.

Some local authorities pay for children with special educational needs and disabilities (Send) to attend private schools.

Value added tax is payable on top of the purchase price of many goods or services in the UK. The standard rate is 20%.

At the moment, private schools do not have to charge VAT on their fees because of a legal exemption for organisations providing education.

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).

The Labour manifesto pledged to end private schools' VAT exemption and business-rates relief, rather than to remove their charitable status.

Legislation will be introduced to remove their business-rates relief from April 2025.

The government expects the policy to raise £460m to spend in state schools next year, and £1.7bn by 2029/30.

The removal of the VAT exemption will be UK-wide, but education is devolved, so each nation's government will decide how to spend the additional money received.

Removing the exemption does not necessarily mean fees will go up by 20%. All private schools are different and some may decide to put up their fees more than others.

On average, the government expects fees to increase by around 10%.

The average cost of private school fees has risen by 55% since 2003, even without VAT, the IFS says.

However, the proportion of children being privately educated over the period has not fallen.

There have been calls for an exemption from the VAT charges for small faith schools, international schools and for families with children with special educational needs.

But only those with a local-authority education, health and care plan, with the school named on it, will be exempt.

And a government grant to help cover boarding-school fees for children of military families will be increased to take account of rising charges.

The grant exists so that children’s education isn’t disrupted every time their parents are sent aboard.

The government says it does not expect the policy to have a significant impact on the number of pupils attending private schools.

It has estimated 35,000 students will move to the state sector over the long term.

It says class sizes will not increase and points to research by the Institute for Fiscal Studies which says it would be possible for the state sector to "easily accommodate extra pupils" because overall student numbers are set to fall by 700,000 between now and 2030.

That drop is larger than the total number of children currently attending private schools.

However, pupil numbers are not falling by the same amount everywhere, so some state schools could face pressure on class sizes.

The Independent Schools Council, which represents more than 1,400 private schools, believes parents are already being “put off just by the prospect of VAT” and the government has underestimated the pupil displacement that will be caused.

It said the drop in students starting secondary school was the biggest in five years, according to a questionnaire to its schools.