Private school VAT prompts a rethink in finance strategy
VAT on private schools comes into effect in January 2025. How are they preparing their finances to safeguard their income? Read our article to find out.
This article is not advice. If you would like to receive advice on your businesses's cash reserves, consider speaking to a Financial Adviser.
From January 2025, VAT on private school fees is officially in effect. For schools, this change brings more than just higher costs – it introduces new pressures on how cash is managed. While some schools will increase fees, others are exploring ways to offset the cost without passing it on to parents.
How does private school VAT work?
A 20% VAT charge now applies to private school fees.
For parents, the government predicted the measure will likely increase their school fees by 10%. But according to analysis from the Telegraph, the average school fee increase is 14%.
For schools, this creates a dilemma. Raising fees risks alienating families, but absorbing the cost threatens their financial stability. Since private schools can’t claim back the VAT they pay on fees, many will need to find other ways to save money or change how they manage their finances.
When did private school VAT come into effect?
VAT on school fees came into effect on 1 January 2025, following an announcement in Rachel Reeves’s Autumn 2024 budget. It fulfilled a key manifesto pledge from the Labour Party, aiming to raise funds for public education.
For parents, the timing means higher fees this year, with the real financial impact escalating further in the 2025/26 tax year. For schools, it’s a race to prepare – both for immediate costs and to rethink their long-term financial strategies.
How much will VAT on school fees raise?
Adding VAT to private school fees is expected to bring in £460m in 2024/25, rising to £1.51bn by 2025/26.
The government has said that the policy will raise more money for education ‘so every child gets the best start in life’, with every penny being funnelled into state schools.
Finance strategies to offset private school VAT
To navigate the financial challenges of VAT, private schools are exploring these strategies:
- Reclaiming historic VAT: Schools can reclaim VAT on certain expenditures made in the past decade. This potentially offers an immediate financial boost.
- Maximising interest earnings: Holding reserves in high-interest savings accounts generates income that can help offset increased costs.
By acting now, schools can make their cash work harder – easing the impact of VAT.
The smarter way for schools to manage cash
VAT brings more than just financial strain – it also increases the administrative burden on schools. For schools with limited resources, juggling multiple accounts, applications, and processes can feel overwhelming.
That’s where Flagstone comes in.
Managing your cash doesn’t need to be complicated. With Flagstone, private schools can access hundreds of high-interest cash accounts from over 60 banks. A single sign-up unlocks a wide range of options – Instant Access, Notice, and Fixed Term accounts – all in one place, with one password.
No paperwork. No hassle. Just smarter, more efficient cash management.
