An expert has warned it is ‘absolutely possible that some parents will have to pay’
Experts have issued a warning to parents who paid private school fees upfront in an attempt to sidestep Labour’s new VAT charge, cautioning that they might face unexpected tax bills. Many families rushed to make over £500 million in advance payments to top schools last year, aiming to avoid the 20% VAT that came into force in January.
However, top tax advisers are now suggesting these families could be hit with VAT bills in future years if HMRC challenges their prepayment schemes for not being legally sound. Dan Neidle, a former tax partner and founder of Tax Policy Associates, explained that VAT is typically due when a service or product is actually provided, not at the time of payment.
Mr Neidle said: “The question is whether HMRC will be challenging these. It is absolutely possible that some parents will have to pay VAT in 2026 or 2027 when the education is delivered.”
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The introduction of VAT on private school fees is projected to generate £1.8 billion annually by 2029, with Labour committed to using this revenue to enhance state education, including hiring additional teachers. Notable private institutions such as Eton, Brighton College, and Winchester experienced remarkable increases in advance fee payments in 2024, recent reports show.
Eton collected some £52.7 million, Brighton College received £50.1 million, and Winchester’s prepayments soared from £4.4 million in 2023 to £19 million. Analysis reveals that the top 50 independent schools raked in £515 million in advance fees last year – more than four times the £121 million collected the year before.
The dramatic surge followed Labour’s confirmation that VAT would be imposed on private school fees if it secured victory in the general election, sparking alarm amongst parents and prompting a rush of offers from schools to accept multi-year prepayments.
However, experts warn that not all such arrangements may stand up to scrutiny. Unless the fees were contractually locked in, and properly invoiced before the VAT deadline, HMRC could determine that VAT still applies when services are actually provided.
Some schools, including Wellington College, have openly warned parents they “can’t guarantee” that the fees will remain VAT-free, depending on how HMRC views the arrangements. Meanwhile, dozens of smaller independent schools have already shut their doors, blaming financial strain and uncertainty surrounding the VAT policy.
According to industry data, more than 50 private schools have closed down, with insiders fearing up to 100 more could collapse within three years. A government spokesperson said: “The independent OBR forecast includes assumptions for increased use of prepayment schemes by parents.”
Labour maintains the policy is about “levelling the playing field,” and generating funds to support the more than 90% of children educated in state schools.
