💼How Independent Schools Can Navigate the 20% VAT Hike
From 1 January 2025, UK independent schools face a 20% VAT on tuition and boarding fees. This could stretch family budgets, test enrolments, and shake up long-term strategy.
😊So who’s enjoying the Labour honeymoon?
🔹Train Drivers - obviously
🔹Public Servants - generally
🔹“Died in the Wool Labour Activists” – certainly.
😟But who isn’t?
🔹Indigent pensioners - worried about losing their winter fuel allowance and not qualifying for any replacement.
🔹Independent school bursars and governors - working to find how they will balance the books in January 2025.
🔹The thousands and thousands of parents despairing when they consider the future unaffordable fees, being jacked up by 20%.
📉 The Challenge for Finance Teams
There is not much we can do about assisting the parents; they have to come to their own very tough decisions and if they withdraw their children, hope there is a State School nearby which provides high quality education and even more importantly, have places available?
For some, unfortunately, the VAT raid is likely to prove absolutely devastating – pupils, parents, schools, communities – and local Non-Independent Schools as they struggle to cope with the possible up to 40,000 pupils who will be looking for places!
But we can help the Bursars and the school finance teams to run the numbers quickly and accurately and provide the Governors with the options they need to be able to make data-driven decisions.
📊 Crunching the Numbers: Reality vs. Claims
It is said that Labour predicated its tax raid on a 2011 report that indicated it would raise £1.7bn from imposing VAT on school fees, claiming this would fund 6,500 new teachers for the state sector. But as this report ignored input VAT, these figures are widely derided.
In the House of Lords on 5 September, the President of the Independent Schools Association, Lord Lexden quoting research by Oxford Economics in 2022, stated:
"The independent schools sector adds £16.5 billion to the UK economy, sustains 328,000 jobs, provides in one way or another £5.1 billion in tax, and saves the education budget £4.4 billion by educating pupils who would otherwise be a cost to the state, a saving that must now be expected to shrink as pupils are forced out of independent schools by the imposition of VAT."
It's certainly going to be tough for the Independent Schools’ finance teams as the struggle to come to terms with the possible loss of up to 40,000 pupils across the sector as a whole, but with a powerful budgeting programme like Forecast 5 at their fingertips at least they will be able to rely on providing fast, accurate, decision ready information to the Governors.
🛠️ How Forecast 5 Supports You
Forecast 5 is designed for complexity in independent schools:
🔹Track fees, costs, loans, assets, VAT in one place.
🔹Build multi-year forecasts (up to 15 years) including P&L, cashflow, balance sheet, funds flow.
🔹Run “what-if” scenarios for enrolment, capex, staffing, and more.
🔹Incorporate actuals monthly to generate rolling forecasts.
Because Forecast 5’s methodology is to track individual records set up for each line of income, cost, fixed assets, loans etc, and importantly in this case, VAT, each record can be separately reviewed.
This means that not only can VAT on future fees be traced but the model will include VAT on all applicable input costs, as well. And this includes tracking VAT on capital costs, and seeing the – in this case – positive impact on the school’s cashflow. And, with ease, get the timing of these input and outflows right.
Forecast 5 can significantly improve the entire planning process.
🔑 Practical Steps to Get Ahead
🔹Baseline forecast – model current budget vs 20% VAT scenario.
🔹Stress-test assumptions – pupil retention, bursaries, capex timing.
🔹Multiple scenarios – best case, central, worst case.
🔹Update regularly – monthly or quarterly incorporation of actuals.
🔹Communicate clearly – governors and leadership must understand assumptions and outcomes.
By leveraging Forecast 5, bursars and finance teams can transform uncertainty into informed decision-making — running accurate scenarios, tracking all fees and costs, and providing governors with the data they need to act confidently.
In a landscape where up to 40,000 pupils could shift across the sector, schools that plan proactively will not only survive the VAT change but can continue to deliver quality education with financial stability. The right tools make all the difference — and with Forecast 5, independent schools can navigate this storm with clarity, control, and confidence.
