VAT for prep schools Post Reply

[Clapham4539]

Hi, 

My daughter is at a prep school in Clapham and I know many of the parents are planning on leaving with VAT being introduced. I have friends who have children in the prep schools in Balham and know many parents plan to leave there also.

It is making me extremely anxious as I am worried about the constant fee increase with the added VAT. Although I can afford it, I do also question whether I want to spend so much on the fees. 

I have a few questions, do parents think: 

1) Many of the smaller private schools will be forced to close down with the influx of parents leaving and 
2) Will prep schools lower their fees to accommodate and make it easier for parents to pay the added VAT.

I am very anxious on how this will all play out. I went to a private school myself and don't want to send my daughter to a state school, but the fee increase with the VAT poses so much uncertainty. 

[J_J]

Curious they're so intent on leaving despite not having any information on the extent to which the change will impact on total fees?

My guess is that it will barely impact on fees. The school will be able to recover any VAT it previously couldn't recover on all services/goods it buys in as it now has taxable supplies. This is likely everything other than salaries, in most cases. So its cost base will go down a lot as well. For the remainder it might need to go up a bit or the school will need to be more efficient with its spending and find a few quid to save here or there. I wonder if any other business and public sector body has ever had to do similar?

Private school fees have been increasing year on year pretty much everywhere anyway, I doubt this will make much of a difference. If any school increases their fees by 20% and says the entire thing is just VAT then they're lying to you.

[IrenaP]

This is a useful piece on bbc 4 on this topic. Important to recognise it’s not one size fits all.
https://www.bbc.co.uk/programmes/m0021377

[HR2611]

My understanding is that whilst incoming and outing VAT can be offset, the biggest outing for schools is the teachers’ salaries and they are not VAT-able and therefore much of a private schools outings cannot be offset. The VAT charge will therefore impact on school fees as it cannot all be consumed by the schools on offsets.

[adamdsouza]

Hello – I'm a teacher, 11+ and 13+ specialist educational consultant and director of an independent schools group, so have some insight on this. You're not alone in questioning the value proposition of your daughter's private prep school education.

Within the local market, I'd say it's going to be "a game of two halves":

1. The bigger prep schools that have economies of scale will probably be able to leverage their relationships with senior schools, claim back some capital costs, and pass on the rest of the VAT increase to parents. From what I'm hearing through ISA (Independent Schools Association) it seems like about 15% increase is where most schools will land. There will almost certainly be cost-cutting, and some niche subjects or extra-curriculars will be cut back.

2. Smaller prep schools will either get consolidated by private equity backed groups (e.g. Duke's, Chatsworth, Forfar) OR hoovered up by senior schools (e.g. St Dunstan's "merging" with Rosemead recently). Or, worst-case scenario, going bust like Ursuline Prep in Wimbledon.

Therefore I guess it depends on which type of school your daughter attends as to its long-term prospects. Good luck. If you need any further specific help, please do look me up.

[adamdsouza]

My understanding is that whilst incoming and outing VAT can be offset, the biggest outing for schools is the teachers’ salaries and they are not VAT-able and therefore much of a private schools outings cannot be offset. The VAT charge will therefore impact on school fees as it cannot all be consumed by the schools on offsets.

This is correct. A typical charitable trust school such as Dulwich College or Emanuel would spend about 60-70% of fee revenue on salaries, while a proprietorial school like Thomas's or Broomwood would be aiming for about 50-55%. Some of the bigger schools or schools that are part of groups will be looking closely at how certain services such as fee collections, catering, transport, facilities maintenance could be outsourced so that the VAT could be claimed back on those too.

[The Roche School]

At The Roche School in Wandsworth, we have decided to absorb the extra cost, so the amount that parents pay for curricular teaching this academic year will remain the same for each term.

We care deeply about our community and the future of The Roche School and will endeavour to mitigate costs while continuing to provide our high standard of education.

https://therocheschool.com/

[readysteadycook]

The first thing these private schools can do, is reduce the outrageous 28% Teachers Pension contributions,Reduce it to 12% like most people get and stop taking parents for mugs.

School Governor’s know it’s wrong as most have removed it for new starters. it’s outrageous this has not been addressed for existing staff. 

“Did you know earlier this year, they increased the employer contribution rate by 5 percentage points, to 28.6%, from 1 April 2024 to ensure that the scheme continues to meet present and future obligations.”

[Pensions]

If the Chancellor understood the economics of employment ‘on costs’ she would appreciate the reason why private school fees have increased above inflation is a result in the changes to the teachers’ pension scheme. The figure mentioned here matches what LEAs have to pay. Some academy trusts are now offering to increase pay in exchange for making lower contributions to defined contribution schemes.
The reason why many people in the private sector become exercised by pay rises in the public sector is the very generous (similar percentage to the teachers) that the state makes to their pension fund.
If local schools withdraw staff from the TPS, without a marked increase in pay, I suspect they would face a recruitment issue.

[Teacher]

If the Chancellor understood the economics of employment ‘on costs’ she would appreciate the reason why private school fees have increased above inflation is a result in the changes to the teachers’ pension scheme. The figure mentioned here matches what LEAs have to pay. Some academy trusts are now offering to increase pay in exchange for making lower contributions to defined contribution schemes.
The reason why many people in the private sector become exercised by pay rises in the public sector is the very generous (similar percentage to the teachers) that the state makes to their pension fund.
If local schools withdraw staff from the TPS, without a marked increase in pay, I suspect they would face a recruitment issue.

[SW16]

Many of the local Prep schools are not part of the TPS which gives a higher contribution of 28.6%. There is a list online somewhere of those schools who are still part of the TPS but many will be set to withdraw or have done so already. Recruitment is going to be a real issue…