Independent schools: VAT and business rates

Approximate read time: 20 minutes

The House of Lords is scheduled to debate the following motion on 17 September 2026:

Lord Lexden (Conservative) to move that this House takes note of the impact of VAT and other tax changes on independent schools since 1 January 2025.

Independent schools are also referred to as private schools. This briefing uses both terms interchangeably.

Private schools charge fees for pupils to attend them and do not have to teach the national curriculum.^[1] However, they must be inspected regularly. Independent schools can be day or boarding schools. They can be mainstream schools or schools specifically arranged to make provision for children with special educational needs and disabilities (SEND). In some cases, local authorities fund children with education, health and care plans (EHCP) to attend independent special schools.^[2]

1. Key points

• From 1 January 2025, VAT at the standard rate (20%) has applied to private school fees, including boarding fees. From 1 April 2025, most private schools in England with charitable status also lost eligibility for business rates charitable relief. These changes were made by Sir Keir Starmer’s government.
• At the 2024 budget, the government forecast that VAT on private school fees would raise £1.51bn in 2025/26, while the removal of business rates charitable relief was expected to raise £70mn to £90mn a year.
• Before the changes were made, the Office for Budget Responsibility (OBR) and HM Revenue and Customs (HMRC) estimated that the application of VAT could lead to around 35,000 to 37,000 fewer pupils attending private schools across the UK, with most expected to transfer to the state sector.
• Department for Education data showed there were around 560,300 pupils in independent schools in England in January 2026, a decrease of 3.8% compared with the previous year. Over the same period, the total number of pupils in all schools in England fell by 1.2%, reflecting wider demographic trends.
• The government has argued that state schools have not experienced the increase in demand for places predicted by some critics of the policy. However, representatives of the independent school sector have argued that published figures do not fully capture the impact of the tax changes because they include independent special schools, which are largely unaffected by the new measures.
• There has been debate about the extent to which recent changes in pupil numbers can be attributed to the tax measures rather than broader demographic factors. Some sector bodies argue the impact has been greater than originally forecast, while others contend it is too early to assess the full effects of the policy.

2. Changes to the tax treatment of private schools

2.1 Labour proposals to introduce taxes on private schools

In its 2024 general election manifesto, the Labour Party said it would reform the tax treatment of independent schools. It made a commitment to:

[…] end the VAT exemption and business rates relief for private schools to invest in our state schools.^[3]

The Labour Party said it would use the revenue raised by these measures to fund new expert teachers; teacher and head teacher training; work experience and careers advice for young people; early language development in primary schools; Ofsted reform; new nurseries; mental health support for every school; and young futures hubs.^[4]

In October 2024, the then chancellor of the exchequer, Rachel Reeves, confirmed in her budget statement the government’s plans to charge VAT on private school fees from 1 January 2025 and to remove the business rates charitable relief available to English independent schools with charitable status from April 2025.^[5] This was then legislated for by the Finance Act 2025 (specifically sections 47 to 49) and the Non-Domestic Rating (Multipliers and Private Schools) Act 2025 respectively.

VAT is a reserved tax and the changes were to apply uniformly across the UK. However, this briefing will focus on the changes in England and the impact on English schools.

Further information on the policy background to these measures, the legislation which introduced the reforms and how they have been implemented across the UK can be found in the following House of Commons Library briefings:

• ‘VAT on private school fees’ (26 June 2026)
• ‘Independent schools: Taxation and charitable status’ (4 October 2024)

2.2 Removal of VAT exemption

VAT 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. In addition, some goods and services are exempt from the tax. VAT law is consolidated in the Value Added Tax Act (VATA) 1994, as amended.

Generally the supply of education is VAT-exempt.^[6] This has meant that historically private schools have not charged VAT on their fees. Prior to the changes introduced by Sir Keir Starmer’s Labour government in 2025, schedule 9 to the VATA 1994 established that the provision of education, research or vocational training by an “eligible body”, along with the provision of examination services, and goods or services “closely related” to the supply of education, research or vocational training, was exempt from VAT. Schedule 9 defined an eligible body and included certain types of schools, including private schools.^[7]

However, under the changes made by Sir Keir Starmer’s government through the Finance Act 2025 (sections 47 to 49), from 1 January 2025 all education services and vocational training provided by a private school in the UK, or a connected person, for a charge, would be taxable at the standard (20%) rate of VAT.^[8] This includes boarding services provided by private schools.

VAT is due on the total of everything that is received in return for providing education to the student.^[9] For example, this may include the amount paid by the parent, as well as any external bursary that may be paid for the education of that student.

The government has stated the measures would not impact pupils with the “most acute additional needs, where these can only be met in private schools”.^[10] Local authorities fund pupils’ places in private schools where their needs can only be met in a private school. In England, where attendance at that private school is required by a child’s EHCP, local authorities will be able to reclaim the VAT on the fees from HMRC.

2.3 Withdrawal of business rates charitable relief

Business rates is a property tax paid by occupiers, or if unoccupied the owners, of non-domestic properties.^[11] Charitable rates relief is a mandatory relief that provides an 80% relief on the bill for properties that are being used wholly or mainly for charitable purposes.

On 29 July 2024, Sir Keir Starmer’s Labour government announced private schools in England with charitable status would lose their eligibility for business rates charitable relief. These measures were introduced under the Non-Domestic Rating (Multipliers and Private Schools) Act 2025.

From 1 April 2025, in England, private schools that are charities are no longer entitled to charitable rates relief, with some exceptions.^[12] For example, the act provides that should the private school be ‘wholly or mainly’ concerned with providing full-time education to pupils that have an EHCP the measure does not apply and charitable relief is retained.

3. Pre-implementation analysis of the tax reforms

3.1 Government assessments

Labour’s fiscal plan, published alongside its 2024 general election manifesto, suggested £1.51bn would be raised by applying VAT to private school fees and removing business rates charitable relief.^[13]

Impact of extending VAT on private school fees

The autumn 2024 budget, delivered by the then chancellor Rachel Reeves, estimated the introduction of VAT would raise £460mn in 2024/25, rising to £1.51bn in 2025/26 and £1.7bn in 2029/30.^[14] However, in 2025, the OBR revised this figure up slightly by an average of £40mn per year.^[15]

The OBR considered the impact the introduction of VAT on private school fees in its ‘Economic and fiscal outlook’ published alongside the 2024 budget. It suggested:

We estimate the policy will apply to the around 600,000 private school pupils in the UK and that the effective VAT rate applied will be 15.4 percent, less than the standard rate as some input costs will be recovered. Overall, we estimate that around two-thirds of the cost is passed on through higher fees, just less than a quarter is reflected in reduced service provision, and the remainder is absorbed through cost efficiencies and from profits.^[16]

The OBR also forecast the policy would overall result in around 35,000 fewer private school pupils, which represented 6% of the number of private school pupils in the UK.^[17] It then estimated the cost of 35,000 additional state sector pupils could be around £0.3bn. However, it said the actual cost would depend on a wider set of factors, such as overall trends in total pupil numbers and the ability of state schools to absorb additional pupils from the private sector, which it said was likely to vary across regions.

HMRC’s impact assessment for the budget announcement on extending VAT to private school fees predicted that in the long run there would be 37,000 fewer pupils in the private sector in the UK, representing 6% of the current private school population.^[18] Of the 37,000 pupil reduction in the private sector, it estimated an increase of 35,000 pupils in the state sector, with the other 2,000 consisting of international pupils who do not move into the UK state system and domestic pupils moving into homeschooling. HMRC said this state sector increase represented less than 0.5% of total UK state school pupils, of which there are over 9 million. It forecast the revenue cost of pupils entering the state sector would steadily increase to a peak of around £270mn per annum after several years.

HMRC forecast that, on average, private school fees would increase by around 10%.^[19] However, it noted there was considerable variation between schools, with some schools fully or partially absorbing VAT costs and others increasing their fees by as much as 20% (more than the net increase in their costs as a result of this measure).

Impact of removing eligibility for business rate charitable relief

In the 2024 autumn budget, the withdrawal of charitable rate relief was forecast to raise £70mn to £90mn a year.^[20]

A Ministry of Housing, Communities and Local Government policy paper, published in May 2025, said the government expected 1,024 private schools to lose their charitable rate relief.^[21] It explained:

Using Department for Education data the government has identified 2,474 private schools in England, of which 1,127 are charities. As set out above, private schools that are wholly concerned with the training or welfare of disabled people will be exempt (and therefore not appear in rating at all). Under the provisions of the new measure private schools that are wholly or mainly concerned with providing education for pupils with an EHCP will retain their charitable relief (where applicable). Taken together, the government expects 1,024 private schools to lose their business rates charitable relief.^[22]

The government also estimated the average increase in business rates per private school pupil to be £308 in the financial year 2025/26.^[23] However, it said that in practice, the impact of this change on business rates increase per pupil would vary across the size of the school, the region in which they operate and the rateable value of the property.

3.2 Assessments by external organisations

In July 2023, the Institute for Fiscal Studies published analysis of the Labour Party’s proposals to remove independent schools’ tax exemptions.^[24] The author suggested removing tax exemptions from private schools would raise about £1.6bn a year in extra tax revenue. This estimate was based on an effective VAT rate of 15% after allowing for input deductions, likely VAT on boarding fees and exemptions for specialist provision. It also included extra revenues from business rates.

The analysis suggested that over the medium to long term, an effective VAT rate of 15% would lead to a 3% to 7% reduction in private school attendance, which would likely generate a need for about £100mn to £300mn in state school spending per year.^[25] It concluded therefore that it would be “reasonable to assume a net gain to the public finances of £1.3bn to £1.5bn per year in the medium to long run as a result of removing tax exemptions from private schools”.

However, the paper stressed there was a lot of uncertainty about the estimates.^[26] For instance, it had not accounted for potential reductions in labour supply and there would be the potential for tax avoidance behaviour on the behalf of parents or schools.

The author also considered the impact of changing demographics, and the forecast decline in the overall number of pupils, arguing:

[…] it is possible that the state sector could easily accommodate extra pupils given that overall pupil numbers across England are due to decline by at least 100,000 per year on average up to 2030 ie a total drop of more than 700,000, which is bigger than the total number of children attending private schools.^[27]

On the subject of rising school fees, the author suggested the evidence could indicate “a potentially weak relationship between fees and the demand for private schooling”.^[28] The paper argued it was “noteworthy that the demand for private schooling in the UK has hardly changed over the last 10 or 20 years”, despite a 20% real-terms rise in fees since 2010–11 and a 55% real-terms rise since 2003–04.

However, in April 2024, the Times reported on the results of a survey of high net worth individuals (conducted by Saltus, a financial planning firm) which found that 71% of respondents said that rising school fees would have an impact on their choices around private schooling in the future.^[29] 26% of parents in its survey said they “would have to remove their children from independent school if VAT was imposed”.

Further information on the analysis and debate on the potential impact of extending VAT on school fees and withdrawing business rate charitable relief can be found in the House of Lords Library briefing ‘Independent schools: Proposed VAT changes’ (14 October 2024).

4. Number of independent schools and pupils since the changes were introduced

The latest school census data for England published by the Department for Education (DfE) showed there was nearly 560,300 pupils in independent schools in January 2026, a decrease of 3.8% from the previous year.^[30] This was the second consecutive year the number had declined.

These numbers reflect a general decline in the total number of pupils: there were just over 8.9 million pupils in January 2026, a decrease of 112,200 pupils (1.2%) from the previous year.^[31] This includes all state-funded and independent schools.

The government has argued these trends are primarily driven by demographic changes, following a peak of births in 2012, as children move through secondary school age and lower numbers of pupils are moving into primary school age.^[32] The primary and secondary populations are projected to continue decreasing to the end of the projection period in 2030.

Table 1 presents the number of pupils of all ages in all schools in England and the number of pupils of all ages in independent schools in England. The DfE records two categories of independent schools: ‘other independent schools’ refers to mainstream schools, some of which are set up to cater for pupils with SEND; and ‘other independent special schools’ that are solely for pupils with SEND.

While the overall number of pupils in independent schools has fallen over recent years, the data shows that the number of pupils within that number that are in independent special schools has increased. The figures also show that in January 2026 pupils in independent schools accounted for 6.3% of the school population, a decrease from 6.4% the previous year.

(Department for Education, ‘Schools, pupils and their characteristics’, updated 14 July 2026)

This DfE school census data shows the changes in overall number of pupils in the independent sector, but it does not show directly how many left the sector.^[33] The net change reflects both departures and new entrants.

The DfE school data census also shows there has been an increase in the overall number of independent schools in England. In January 2026 there were 2,497 independent schools, compared with 2,456 the previous year. However, while there had been a net increase in the number of independent special schools, there had been a net decline in the number of mainstream independent schools. Between January 2025 and January 2026 there was a net reduction of 47 mainstream independent schools and a net increase of 88 independent special schools.

The total number of all schools in England had risen by 20 over the past year.

Table 2 presents further data on the total number of schools in England and the number of independent schools.

(Department for Education, ‘Schools, pupils and their characteristics’, updated 14 July 2026)

The Independent Schools Council (ISC) also publishes an annual census. Its data is for the whole of the UK, but is only for independent schools that are affiliated with the ISC. The latest survey data is for January 2026.^[34]

Based on data collected from schools completing the census in both 2025 and 2026, the ISC reports:^[35]

• there was a reduction in pupil numbers of 20,251, a decrease of 3.8%
• most years groups saw a decrease typically between 3% and 6%.
• the largest reductions were observed in key intake years: 5.2% in reception year; 5.6% in year 7; and 6.6% in year 12.

The report suggests these trends can be attributed to the different sizes of adjacent cohorts rather than as a direct result of pupil retention and starts. It argued:

These changes largely reflect differences in the relative size of adjacent cohorts rather than direct measures of pupil retention or recruitment. As a result, sharp movements, particularly at intake years, should be interpreted as indicative of changing cohort sizes as well as underlying entry patterns. Some variation between year groups is also driven by differences in the size of cohorts moving through the system, linked to demographic fluctuations in earlier years.^[36]

The report also found that among schools that completed the census in both January 2025 and January 2026, the overall average annual fee increase was 4.4%.^[37] This excluded VAT and nursery fees. It also excluded data from independent special schools. The ISC found that fee levels also varied by phase, with fees rising from junior to senior and increasing further between senior and sixth form provision.^[38] The report stated that regional variation was also evident, with higher average fees in London and the South East and lower fees in other regions.^[39]

5. Recent debate on the impact of the tax changes

Since the introduction of the measures, a number of members of Parliament have asked the government for updates on its estimates of the revenues raised by extending VAT on school fees and the removal of business rates charitable relief, and the impact this has had on school places and school closures. To date, in response, ministers have referred to costings and estimates set out in the 2024 budget and the OBR’s forecasts.^[40]

However, in June 2026, following the release of DfE data on school admissions, the then education secretary, Bridget Phillipson, wrote an article stating the figures showed that state schools had not been overwhelmed with pupils as a result of the tax changes affecting independent schools.^[41] She argued:

A year and a half ago, the headlines were apocalyptic with claims that ending the VAT tax break for private schools would overwhelm the state sector. […] Today’s data shows those predictions were wrong. The proportion of families receiving an offer at one of their preferred schools is at its highest level since records began. Fewer children are missing out on a preferred school place than at any point in the last decade.^[42]

The DfE admissions data referred to by Ms Phillipson is collected from local authorities. The latest statistics provide the number of applications and offers made for primary and secondary school entry in September 2026, and the proportion which received preferred offers.^[43]

The most recent data showed that the proportion of primary applicants receiving an offer of their first-choice school decreased slightly from 92.6% in 2025 to 92.4% in 2026. The proportion of secondary applicants receiving an offer of their first-choice school increased slightly from 83.5% in 2025 to 83.6% in 2026. The statistics show that primary and secondary applicants are both very likely to be offered one of their preferred schools, 98.7% (up from 98.6 % in 2025) and 96.4% (up from 96.3% in 2025) respectively.

However, CEO of the Head’s Conference Simon Hyde has argued the DfE’s statistics on the number of independent schools and the number of pupils “paint a confusing picture”. He argued:

Technically, more private schools have opened than closed. But these are usually smaller schools that cater for pupils with special educational needs, which are not subject to VAT, or whose charges are covered by local authorities.^[44]

The chief executive of the ISC, Julie Robinson, has also argued the figures “do not provide the full figure” because they include special schools “where fees are not largely subject to VAT, and that provision isn’t suitable for children whose mainstream school has closed”.^[45] She has also suggested that the number of children at independent schools has fallen by 30,000 since January 2025.^[46] Julie Robinson argued the reduction could not be explained by “demographic changes alone” and that the evidence suggested the impact was greater than predicted.

However, the Good Schools Guide suggests it “will take years before an accurate assessment” can be made of the impact of VAT on school fees.^[47] The author notes that it remains too early to determine how independent schools will balance maintaining standards while keeping fees affordable. They suggest that possible consequences could include reductions in staff numbers, scaling back extracurricular activities or “trimming” bursary and scholarship budgets.

---

Image by Freepik.

This briefing was updated on 14 September 2026.