What is VAT and how is it changing?

What is VAT?

VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses.  VAT is charged on ‘taxable supplies’. These include goods and services, where a service is defined as anything other than supplying goods. 

At the time of writing, several goods and some services are VAT-exempt—for example, property, land and buildings, charity events, healthcare, education, and training. 

The VAT Notice (701/30) applies to education and training. Educational institutions that require payment for the education they provide, so are classed as a business activity, are independent fee-paying schools, including non-maintained special schools, universities and institutions teaching English as a Foreign Language. 

What is changing?

The new Labour government campaigned on a manifesto pledge to apply VAT at 20% to independent schools’ fees. Labour has also pledged to remove the Business Rates relief currently afforded to independent schools as charities.

It now seems likely that the policy will be implemented soon (though not for September 2024), and that when legislation is introduced, VAT will be applied to almost all aspects of a school’s fees, and Business Rate Relief will be removed.

At the time of writing, much remains unclear and it is likely to do so until further announcements are made by the Government and legislation is published.

Why has the policy changed?

Labour’s manifesto pledge is to use the income gained from VAT on fees to fund changes to education including the recruitment of 6,500 new expert teachers in key subjects, 3,000 new primary school-based nurseries and free breakfast clubs in every primary school. 

What is the view of the headteacher of Heathfield Knoll School?

I remain very disappointed by these policies.  As a teacher of nearly 30 years, the last ten served as a headteacher, I want the best for all children, regardless of their age, location or socio-economic background. Investment in a child’s education is an investment in their future. Nevertheless, to single out our hard-working parents, to fund this investment is unfair. Our parents are largely atypical of those portrayed in the media – they are middle-income, both working and tax-contributing, and making significant sacrifices to pay tuition fees. 

The policies will also undermine our wider objectives and aims in respect of benefit to the wider community, including our work with local authorities and SEND children. 

Our response to the Government’s VAT policy

VAT is a tax on the consumer, not the business. Current laws would permit us to reclaim elements of  VAT we pay against VAT we collect.

Where we can recover VAT, for example on the purchase of goods where we previously would have paid VAT in full we will pass those savings to parents. Since the majority of our costs are for staff salaries, against which we cannot recover the VAT, the VAT savings which we may be able to pass on will only partially offset the impact to fee payers of VAT being added to fees and the cost to the School of paying higher business rates.

At present, it is still impossible to provide hard and fast numbers on the costs to fee payers and the School because Labour’s policy remains scant on the detail we need. For example, it remains unclear if VAT will be applied to after-school care, Early Years provision, clubs, catering, transport, school trips, and IT provision. Likewise, there is uncertainty around the nature of any VAT exemptions that might apply to pupils with special educational needs or disabilities.

The school has a strong record of good financial planning and fiscal management. This has allowed investment in infrastructure (such as IT), teaching spaces (including the Sebright Music and Technology, Art and Sixth Form buildings and refurbishments of science and Douglas classrooms). As part of these processes, the school has done much over recent years, particularly in the last 12 months in which the Labour manifesto has taken shape. This all places the school in a strong position to mitigate the possible effects of the Government’s policy.

Our central aim is to provide an outstanding education for all of our children while doing all we can to serve the financial interests of our fee-payers. We have worked hard to keep fee increases to the minimum required to be able to continue to operate sustainably as a school, by growing the size of our school, diversifying income, and removing extraneous costs where this could be done without detriment to educational provision, safeguarding and health and safety.

How can the school help me to pay school fees?

As a smaller school, we do not have deep bursarial pockets. Nearly all of our revenue is from tuition fees so bursaries are directly funded from this. Nevertheless, we are committed to providing financial assistance to eligible families, including those already enrolled, where parents are experiencing financial difficulty. Further information is contained in our Bursary Policy, which is available to view on our website, and which sets out eligibility criteria and details of how bursary and financial assistance are determined. 

If your situation is such that you are likely to require financial assistance or a bursary for your child to remain at the school as and when VAT is introduced, we would encourage you to get in touch with us now to help us scope what support we might be able to provide to individual families, as well as to establish the scale of financial difficulty among our community arising from the Government’s policy.

How is Heathfield Knoll future-proofing the school and business?

The school is committed to providing an outstanding education, regardless of external threats. This includes further development of outdoor learning spaces, an improved extra-curricular offer incorporating the HK Award and an enhanced programme of trips and visits. We remain the highest-achieving school in the Wyre Forest area and demonstrate excellent value added. 

As a business, we have realised operating efficiencies to reduce costs and managed tuition fee levels to offer value for money (and, for example, across five years of secondary school,  are significantly cheaper than our independent competitors). Opportunities are being actively explored locally and with KSI Education to generate additional non-fee income through diversification and increasing revenue from commercial activities;

I will update our position with as much information as and when we are in a position to do so.