Family Law: VAT on School Fees

On 29 July 2024, the Government outlined details of the highly anticipated 20% VAT charge on private school fees across the UK. Previously, education services supplied by an “eligible body”, which includes private schools, were exempt from VAT, which means private schools do not charge VAT on their fees.

Under the new rules, from 1 January 2025, all charges for education services and vocational training supplied by a private school will be subject to VAT at the standard rate of 20%. In addition, the 20% VAT charge will apply to related boarding and lodging services, and to additional supplies of education after school hours and during holidays.

There are exemptions and exclusions to the new rules, and the following will remain exempt from the new VAT changes:

– Integral “closely related services”, other than boarding, such as school meals, transport, books and stationery;
– Nurseries (both standalone and those attached to a private school);
– Education and vocational training provided by further education colleges classified as public sector institutions;
– Education and boarding provided by state schools (including academies);
– Non-educational before/after school childcare, or childcare-based holiday clubs; and
– Private tuition of ordinary subjects.

There will also be an additional exemption for Special Educational Needs (SEN) pupils who have been placed in a private school because their needs cannot be met in the state sector, and who have their places funded. However, the exemption will not extend to SEN pupils who attend a private school and whose fees are paid privately, i.e. whose fees are not funded by a Local Authority or otherwise.

The VAT changes will be legislated for in the Finance Bill, which will be introduced following the Budget on 30 October 2024. The rules will then be effective from 1 January 2025.

It is important to note that measures have been introduced to avoid parties trying to avoid the cost impact of the new changes. As such, any fees paid from 29 July 2024 which relate to the term starting in January 2025 onwards will be subject to VAT. At this stage, there does not appear to be any retrospective tax on advance payments that were made before 29 July 2024. However, it is important that a paying party checks how payments have been made if funds are held on account and then invoices are raised in the future then it remains to be seen as to whether VAT will be charged.

There are also changes which removes the ability of private schools to claim charitable status, and the requirement for them to pay business rates, all of which is going to certainly lead to a significant increase in private school fees in the very near future.

How does the added VAT on school fees impact a divorce or family law matter?

From a family law and divorce perspective, these changes are important to bear in mind for a number of reasons, such as:

– In financial remedy and divorce matters which have concluded, and which provide for one party to pay private school fees for the benefit of children, the changes outlined by the government will see those fees potentially increasing dramatically. That brings into question whether financial orders could be subject to variation applications. Whether or not the increase in private school fees due to the introduction of VAT would reach the threshold of varying an order remains to be seen.

– In financial remedy and divorce matters which are in the process of being negotiated, potential offers of one party to pay private school fees may now result in those being withdrawn due to affordability concerns, or it may result in changes to other aspects of settlement proposals to take into account the increase in fees which will soon arise.

– In private child law cases involving disputes over children’s schooling, we anticipate that in cases where there is a dispute over a child attending a fee paying vs. state school, or in cases involving a dispute between a child attending one fee paying school over another, the issue of costs is likely to become an even more important consideration to the court than it already is.

The Government’s consultation on the proposed changes to the VAT rules is open until 15 September 2024 however it is not anticipated that significant changes or backtracking to the overarching proposals will take place. The Government has confirmed that it “may make technical amendments to the VAT legislation in order to ensure that it works as intended” but given this was a key policy promise during Labour’s election campaigning any changes are anticipated to be “technical” only.

If you or someone you know is in the process of separating and has children at a private school, or if you are separated and considering a proposed move of your child to/from a private school in the near future, then we highly reccommend you seek legal advice as soon as possible. At Maguire Family Law we are experts in our field who can assist and advise you on the best way to navigate these changes. Our family law specialist, James Maguire, discusses how the law can help in divorce & separation cases involving school fees.