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VAT on private school fees

How does VAT work?

VAT (Value Added Tax) is levied on the purchase of many goods and services. It is charged at the standard rate of 20%, though some goods and services are charged a reduced rate of 5% and some are charged a zero rate.

Some goods and services are exempt from the tax. The way businesses account for VAT to HM Revenue & Customs (HMRC) will differ if the goods and services they supply are exempt rather than zero-rated. However, from the perspective of consumers both zero-rated supplies and exempt supplies will be VAT-free.

What change has the Labour government made to the VAT treatment of private school fees?

Generally the supply of education is VAT-exempt. This has meant that historically private schools have not charged VAT on their fees.

In its 2024 general election manifesto the Labour Party stated that in government it would remove the VAT exemption that applies to private school fees. Following the election the government announced that private school fees would be charged VAT at the standard 20% rate from 1 January 2025.

The Chancellor Rachel Reeves confirmed the government’s plans to charge VAT on private school fees in her Budget statement on 30 October 2024. Legislation to this effect was included in the Finance Act 2025 (specifically sections 47 to 49).

What has the impact of this measure been?

At the time of the Autumn 2024 Budget the government estimated that extending VAT to private school fees would raise £0.46 billion in 2024/25, rising to £1.51 billion in 2025/26. It also forecast that imposing VAT on fees would result in 37,000 pupils leaving the private sector, representing about 6% of the current private school population. In its Economic and Fiscal Outlook published alongside the 2025 Budget, the Office for Budget Responsibility noted that the projected yield from this measure had been revised up slightly by an average of £40 million per year, driven by the updated forecast for average earnings that is used to project fee growth.

HMRC has published guidance for schools on whether they need to register for VAT, and how schools should charge and reclaim VAT on goods and services related to private school fees.

Further reading

The Library briefing Independent schools: taxation and charitable status provides further details on the independent school sector and the charitable status that some independent schools have. It also discusses the Labour government’s decision to remove the charitable (business rates) relief that had been available to English independent schools that are charities from April 2025.