VAT on school fees – What does it mean for school fee orders?

By Alison Green, Partner and Head of the Family and Relationship Team at Mackrell.Solicitors

Labour’s plan to impose VAT on private school fees could bring significant changes for separated parents navigating existing or potential school fee arrangements in family court orders.

This policy shift, expected to take effect from 1 January 2025, will impose VAT at a rate of 20 per cent on education and boarding services, raising complex questions for both current and future arrangements regarding children’s schooling.

Existing school fee orders and potential variations

For separated parents with an existing school fees order – a legally binding arrangement detailing which parent covers school fees and how long they are obligated to do so – this VAT change could prompt a need for reassessment.

As private school fees have already been impacted by rising inflation, adding VAT to these costs may render current arrangements unaffordable for the paying parent, particularly when balancing other obligations, such as child or spousal maintenance.

In these cases, parents may need to explore variations of the school fees order through the family court.   Whilst the parties can of course agree that an order which makes provision for school fees can be varied, in the absence of such an agreement there would need to be an application made for variation of the court order.  We would always encourage parties where possible to engage in non-court dispute resolution on such issues with a court application being the last resort.

The court will weigh the welfare of the child against affordability, prioritising housing and income needs over maintaining private school attendance if the latter becomes unsustainable.

In doing so, courts will likely require evidence that all non-court resolution routes, such as mediation or arbitration have been considered, if not pursued.

It should, however, be noted that pursuing a variation application is not without its own financial burdens, and pragmatism is essential to avoid legal costs that may erode funds intended for the child’s education.

Implications for children with special educational needs (SEN)

The VAT impact is particularly concerning for children with special educational needs (SEN), where private schools may provide essential tailored support unavailable in state schools.

Where SEN children cannot feasibly transition to state education, a reassessment of the financial support needed may be warranted.

The Government has stated that local authority-funded placements in private schools, specifically for SEN students whose needs cannot be met in the state sector, will not incur VAT; however, privately funded placements will.

This exemption acknowledges the unique educational requirements of some children but may still leave privately paying parents with additional costs.

New school fee orders: Future-proofing and planning considerations

Newly separated parents considering school fee arrangements should obviously factor in the VAT implications.

For example, parents may need to agree on provisions that account for increased costs over time, and an obligation to consider whether alternative state schooling options are feasible should private school fees become prohibitive.

As child maintenance is often a contentious issue during separation, discussions around school fees may now become even more complex.

The potential for 20 per cent added costs could shift parents’ focus towards state-funded education options or compel them to consider ‘top-slicing’ a capital fund to secure a child’s future private education.

This capital fund approach, involving pre-setting an amount to cover school fees, must now account for VAT, alongside other anticipated inflationary increases, to ensure that educational arrangements remain affordable.

Future educational choices and specific issue orders

Where there is disagreement on a child’s schooling—whether to attend a private or state school, especially if costs become prohibitive—parents may need the court to intervene through a specific issue order.

Here, the court’s primary concern is the child’s welfare, including stability and access to appropriate educational resources.

The added cost of VAT on private schooling may make it harder for parents to argue for private education, particularly if comparable state alternatives are available.

Fairness and financial strain

Critics of the VAT policy argue that it could unfairly burden parents who wish to keep children in private schools post-separation but cannot afford the increased cost.

Parents without significant resources may find the VAT addition to fees makes private education untenable, necessitating state school options which might disrupt a child’s educational continuity.

Additionally, if parents have prepaid school fees in anticipation of VAT changes, the policy’s potential retrospective application remains a concern that may affect their financial planning.

What should you do?

As the government’s policy for VAT on private school fees edges closer to implementation, separated parents with or considering school fee orders should prepare for the potential impact. This policy change necessitates careful consideration of affordability, fairness, and educational quality, especially where SEN provisions or alternative state schooling options are involved.

For those with existing orders, a reassessment through non-court dispute resolution or even an application to the court for variation may be prudent, while future arrangements should carefully factor in all long-term implications of the added costs.

If you would like further guidance please call Alison Green on  0207 240 0521or email alison.green@mackrell.com