Private school fees remain subject to VAT
A recent High Court judgment has confirmed that private school fees will remain subject to VAT after a challenge to the government policy was rejected.
Ever since the Labour Government committed in its 2024 election manifesto to making private school fees subject to VAT, a debate has been raging about the impact the decision will have on parental choice for educating their children and whether it is fair to treat all private schools differently in terms of liability for VAT, particularly those which are registered charities.
These questions have been answered by the High Court in a recent ruling which endorsed the lawfulness of the government’s approach to introduce VAT on private school fees. In so doing, the tremors already felt through the independent school sector continue to reverberate.
Background
It has been a long-held principle that the supply of education is VAT-exempt, reflecting a general belief that schooling is not ‘in business’, rather it is the essential delivery of a fundamental human right. This changed when Labour’s manifesto sought to impose VAT at 20% on all education, vocational training, and board and lodging fees at private schools. In so doing, they marked out private schools – and, in particular, the charging of fees for the provision of their services – as selling services to customers and thus bringing them within the auspices of taxable supplies.
Part of the logic of this process, aside from raising money for the Exchequer, was a redressing of the perceived imbalance between the private and state school sectors: according to the IFS, the average annual private school fee is 90% higher than state school spend per pupil.
Despite protestations, the government’s proposal was confirmed in the 2024 October Budget and became law under the Finance Act 2025, coming into effect on 1 January of this year.
So followed a legal challenge in April of this year which argued that these measures impeded access to education at independent schools and are incompatible with rights to education and to freedom from discrimination under the European Convention on Human Rights (ECHR).
The judgment
On 13 June 2025, the High Court ultimately determined that the government’s policy represented no such breach of human rights. The ECHR, they said, did not protect the ‘right’ to pay school fees at a particular level:
Parents always have the option of not paying any school fees at all - and therefore no VAT - by sending their children to a state school or educating them at home.
Interestingly, the judgment reflected on the government’s admission that the policy would inevitably mean that some families would no longer be able to afford to send their children to fee paying institutions and that an estimated 100 schools would close over the next three years in addition to the normal levels of pupil turnover. While these issues touch on rights to education, the Judges said, they should also be seen in the context of the fact that additional revenue and benefit would be enjoyed by public services, including state schools.
Implications
Whatever, the merits of either side of the debate, this ruling solidifies a policy that will undoubtedly have a major impact on schools and parents alike. Furthermore, it means that government and the wider sector have to face questions and considerations they may have set aside until after the High Court decision and which, now, loom imposingly in the near distance:
- While the government has stated the revenue from increased VAT will raise £1.8bn a year by 2029/30, critics will point to the fact that the UK’s independent school sector is estimated to contribute £16.5bn to the UK economy. What can be done to ensure there is not a ‘net loss’ to education across the UK?
- If, as the IFS estimates, the rises in school fees will lead to a 3-7% reduction in private school attendance, is the infrastructure of the state school sector sufficient to be able to effectively absorb this cohort of pupils? And what if the drop-out rate is higher? There are approximately 600,000 children (6% of all school age children) who are education in private schools.
- What might be the impact on certain pupils in the system? One of the cornerstones of the legal challenge was that the independent school sector catered best for the particular needs of children with special educational needs and disabilities (SEND) and those from particular faiths. This, they said, stands in contrast to the gaps that exist in the state school system for these individuals.
Schools and parents will likely mull over the fact that, despite fact that we are already six months into the implementation of this policy, the landscape is, currently, far from clear.
Next steps
A challenge to the High Court ruling is anticipated. The Christian Legal Centre for example, has said that it will support an appeal by claimants who said the tax discriminated against their right to maintain a private Christian education. Julie Robinson, the chief executive of the Independent Schools Council (“ISC”), one of the claimants, has also said:
This is an unprecedented tax on education and it was right that its compatibility with human rights law was tested.
The ISC is carefully considering the court’s judgment and next steps. Our focus remains on supporting schools, families and children. We will continue to work to ensure the government is held to account over the negative impact this tax on education is having across independent and state schools.
Given the current position, it would be sensible for private schools to continue to step up their work to adjust to the VAT measures.
Central to this is likely to be properly identifying which income is subject to VAT and which is not. For example, certain services remain exempt from this tax if they are related to the supply of education and/or vocational training. That means that revenue from streams such as school meals, transport and exam fees continue to not attract VAT.
Furthermore, those private schools charging VAT are also able to recover VAT paid on their inputs, such as capital expenditure. This may mean that some schools could, in turn, pass on these savings by reducing the amount they increase their fees to, thus reducing the impact on families and helping to retain some pupils who might otherwise leave. Of course, this may not be possible for all schools, but it is an important consideration, nonetheless.
Conclusion
The High Court ruling is, in many ways, confirmation of what we already knew. In other ways, it also changes a lot: it sets out a precedent for how the courts view private schools, it opens the door for future public policy treatment of the independent school sector as being ‘in business’ and, most importantly, it shows that this policy is here to stay.
The recent Court case has also shone a spotlight on the gaps in the state education sector, particularly the lack of provision in many parts of the country for children with SEND who do not have access to either appropriate support in a state-run mainstream school or special needs school.
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