There has been a strong reception to the removal of the VAT exemption for private school fees set to happen on 1st January 2025.
The policy to reduce some tax benefits for private schools was twofold and from the 1st April 2025, charitable rates relief is also set to be removed from private schools in England.
What does this mean?
Currently, any school with charitable status qualifies for charitable rates relief worth 80% of their business rates charge. The billing authority has the ability to increase this to 100% using discretionary powers.
The proposed change would remove private school's eligibility for the relief and all private schools would pay full business rates.
Will this effect every private school?
The Government have stated they believe this will effect 50% of private schools in England as not every private school held charitable status.
The Government has also stated within their technical note on the topic that they will consider the potential impact of these changes where private school provision has been specified for pupils through an education, health and care plan (EHCP). It's unclear whether this means some level of business rates relief for schools with children on EHCPs or whether additional funding will be given.
As business rates are devolved, this will only affect private schools in England, however, Scotland has charged full business rates on schools for years.
What is the impact of this change?
The Private Education Policy Forum estimated in 2022 that this change will result in an additional £144 million in tax, this figure was then relied upon in a report by the Institute of Fiscal Studies in 2023. This figures pales in comparison to the estimated amount expect to be generated by the removal of the VAT exemption, which is slated to raise roughly an extra £1.7 billion in tax.
Does this mean there is no way to reduce the business rates of private schools?
Not at all - reliefs are only half the equation to calculating business rates liability. The rateable value forms the other half and can be challenged with the Valuation Office Agency.
The valuation of schools can be complex as they are often valued on the contractors basis. If you would like to review your options with experts or have any questions about what this change means for you, please get in touch with us on 0208 0950 990 or info@hollowaybond.co.uk.
You can also read a review of another school we helped here.
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