What is VAT?

VAT or Value Added Tax is paid on most goods and services at a standard rate of 20%. Before Labour's new legislation, Private (or independent) schools were eligible for VAT exemption.

New VAT rules for private schools

Initially, all schools classed as education providers under the Education Act were exempt from VAT. However, Labour leaders recently confirmed that from 1 January, private (independent) schools will have to pay the full 20% tax rate. This also applies to any pre-paid fees from 29 July 2024 that cover costs after 1 January 2025.

Why has this been introduced?

According to the treasury, the new tax policy is expected to raise 1.725 billion annually. The Labour government says this money will be invested in improving education in state schools and hiring around 6,500 new teachers.

Will this cause school fees to rise by 20%?

Schools were not required to pass the full 20% on to fee payers, and most didn't. Schools can reclaim VAT on their own costs, which offsets part of the charge, and many absorbed a portion to protect enrolment. Fee increases attributed to the change have generally landed closer to 10% than 20%, though the impact varies school by school. Eighteen months in, the pressure on school budgets is no longer a forecast; it's a line item.

What will be liable for VAT?

Although private schools will now be charged 20% VAT on school fees and boarding services, it will not be a blanket charge covering every aspect of private school costs. The draft legislation specifically states that "other closely related" goods and services other than boarding (i.e. goods and services that are provided by a private school for the direct use of their pupils and that are necessary for delivering the education to their pupils) will remain exempt from VAT."

Currently, costs that could be classified as 'closely related' will not be subjected to tax.

This includes:

  • School meals.
  • Transport.
  • Examination fees.
  • Books and stationery.
  • Wrap-around care, such as breakfast / non-educational holiday clubs.

It should be noted that breakfast clubs and recreational holiday clubs are not affected by the 20% VAT policy. However, educational after-school clubs and holiday provision, such as fees for extra tutoring, are liable for the charge.

Where does that leave school budgets?

For bursars, the challenge since January 2025 has been absorbing a major new cost without passing all of it to parents. That has pushed many schools to look hard at their operating costs, and energy is consistently one of the largest controllable lines. A school campus, with its old buildings, swimming pools, boarding houses and long heating seasons, is exactly the kind of estate where energy waste hides.

Is your school eligible for relief of VAT & CCL?

Guide to VAT and Climate Change Levy relief for charitable independent schools

Here's the relief many schools miss. If your independent school is a registered charity, as roughly half of independent schools are, you may be entitled to significant reductions on your energy bills specifically. Charities and non-profit organisations qualify for the reduced 5% VAT rate (down from 20%) on energy used for non-business purposes, and exemption from the Climate Change Levy charges (CCL).

The school fees VAT change did not remove this energy relief; the two operate independently. Yet awareness remains low: research has suggested that over a third of charities don't realise they can claim the reduced VAT and CCL exemption. For a school with substantial energy bills, correcting the rate, and reclaiming overpaid VAT for past periods where eligible, can be worth thousands of pounds a year at precisely the moment budgets are squeezed.

If you think your school may qualify, it's worth checking your current bills: the VAT rate applied is printed on them. If you're being charged 20% and believe you qualify for 5%, contact us and we'll advise on next steps, including the declaration your supplier will need.

Assisting you one step further..

Once your energy charges are amended, your school will reap the rewards of a lower energy bill each month. But keeping track of your energy usage is another great way to keep costs low. Whether your school is one building or several departments, tracking usage across the site can be tricky. It's difficult to target problem areas of unnecessarily high energy usage without the right tools.

Purely Energy is offering free energy software management for all customers -INSIGHT. Your account manager will work closely with you to develop long-term energy saving strategies. Purely Energy will help deliver bespoke services that generate long-term savings, ensuring your school has the financial security and educational excellence it deserves.

If you have any queries about how the latest updates on VAT for private schools or would like help lowering your energy costs, contact us at 0161 521 3400 or Info@purelyenergy.co.uk. Alternatively, Get a Quick Quote.

If there are any suggestions or questions - Please get in touch with us.

*This document is not tax advice, please consult with your school bursar for further information.