Deciding where your child goes to school and how that should be funded is one of the most important decisions in any parent’s life. For separating or separated parents these issues can be even more difficult to navigate.
When and how school fees are to be paid are often carefully negotiated aspects of a financial agreement on divorce or separation. Labour’s pledge to end the VAT exemption on private schools may, therefore, be especially unsettling for separated or divorced parents, who are subject to a court-ordered obligation to pay school fees. In these circumstances, parents may need to be released from their court-ordered obligations if school fees are no longer affordable; otherwise, they risk being in breach of a court order in the event of non-payment.
Currently, private school fees in the UK are VAT exempt, meaning they do not have to charge the standard 20% VAT on their l fees. However, under Labour’s proposal, private schools would be required to levy this tax, passing on higher costs to parents. Naturally, this could lead to further uncertainty for parents who are going through, or have already gone through, a separation or divorce. Labour has to date declined to confirm exactly when the VAT will be introduced but it is thought that the most likely date will be September 2025.
For those that already have an agreement or court order regulating payment of private school fees, now would be a good opportunity to review matters and, if needed, seek legal advice about your options. Some may be able to agree a change, but where finances are carefully balanced, any disagreement could lead to unwanted further litigation and conflict for some families. Many will not have foreseen or made provision for a 20% increase so the financial ramifications of Labour’s proposed changes could be considerable. This may cause cash flow issues even for high-net-worth individuals who perhaps have several children of school age. In addition, parents could be impacted by potential private school closures, resulting in the possibility of more contentious decisions to be made. If Labour do press on, there may be increasing numbers of parents seeking to vary their agreements or court obligations on affordability grounds.
One commonly used option (often seen in divorce cases), is the "payment in advance" scheme where parents fund future school fees upfront. Historically used as a means of financial planning, the schemes were not intended to be used to avoid potential VAT related-fee increases, but they are now being considered by some in the hope they may help them avoid the 20% hike. Labour has made it clear that it will crack down on attempts to avoid payment of the VAT, including the possibility of introducing retrospective legislation. Therefore, whilst "payment in advance" schemes may seem an attractive option, they come with a significant health warning. If Labour introduces retrospective legislation, parents may still have to pay the VAT. Parents who have already used these schemes will also need to check their position. Having a VAT receipt issued to you at the point the payment in advance was made could be crucial and it is not known if all schools will have troubled to do this historically, and before VAT was an issue. Without that VAT receipt, there may still be a vulnerability to the VAT hike, even for those who thought they had bought peace of mind by pre-paying.
Ultimately, if private school fees are no longer affordable, a decision will need to be made about where the child should be educated. This decision falls to both parents and anyone who has parental responsibility for the child. Any disagreements over such issues could lead to court proceedings if other dispute resolution forums (such as mediation) have failed, with a family court judge making the final decision.
In light of the proposed VAT changes to school fees, parents who have committed to paying these fees should take proactive steps to limit their exposure to potentially unaffordable fees. Initiating early discussions about affordability and considering alternative schooling options can help to prevent conflict and encourage agreement. If disagreements do arise, mediation or other non-court-based resolution methods should be explored before litigation. Seeking specialist advice early, especially when existing orders or agreements may need review, is crucial. Timing matters, as educational decisions are often time sensitive.
Victoria Batstone