VAT on independent school fees - terms fees in lieu of notice

[JammyDragon]

Hi

The introduction of VAT on independent school fees is unsurprisingly getting a lot of coverage on this site/forum. I would like to share a scenario we're faced with to glean some views and opinions and perhaps some advice on legal recourse options we may have.

So.....we registered our Son at our local independent school back in March for the term beginning September 2024. Until now he has attended a state school. We signed the parent contract agreement with all the T&Cs you would normally expect, including the requirement for parents to provide a full terms notice of withdrawal of their child from the school. In the event of less than a full term's notice being provided the parents are liable to pay a full terms fees in lieu of notice. We understood all of this and the reasons why the school insists on this (as is normally the case with independent schools to control budgeting, staffing levels etc.).

However, 4 weeks after we signed the agreement the school notified all parents that their fees would be increasing by 8% from September 2024. This came as a shock as this had not been previously mentioned during the application and registration process. On checking the contract T&Cs we noted that the school reserves the right to increase fees but would always 'try' to provide a terms notice and if the increase was ever greater than 5% the terms fees in lieu of notice on withdrawal would be waived. In fairness to the school a terms notice had been provided in this case although unsurprisingly parents were not reminded of the release clause.

Despite this unforeseen increase taking us to our affordability limit, we decided to take it on the chin and continue with our plan to send our son to the school in September.

Fast forward to 29th July and the publication of the draft government legislation on the application of VAT on independent school fees from 1st January 2025. As most people with children in independent schools will be aware, the amount of VAT (up to the maximum 20%) passed on to parents is at the schools discretion, allowing the them to offset some of the VAT gains they will make on some of the capex and service costs when they become VAT registered to soften the impact on parents.

With a great deal of media coverage on the matter it became clear that many schools were informing parents of their specific plans with the majority planning to pass on between 15% and 20%.

On seeing the draft legislation announcement we immediately contacted the school to understand their position and plans for the proportion of VAT they would plan to pass on to parents from 1st January 2025. The school didn't respond to us individually but sent a letter to all parents explaining the general situation (with no specific details on percentage levels) explaining that an update would be provided before the start of term. This update never came and the school as yet still hasn't communicated anything further to parents on the matter.

Despite repeated requests for a response from the school to no avail, we had to make a decision based on the potential risk of a substantial increase in costs to us and informed the school that we would be withdrawing our son. The school responded to say that we would be liable for a terms fees in lieu of notice.

We have appealed against this decision citing not only the original unforeseen 8% increase but also the fact that the school have been unable or unwilling to provide us with the planned applied VAT percentage from January. There must be some certainty that the school will be applying at least 5%, but more likely 10-20%, and in our view that information, albeit provisional, should have been communicated to parents, as many other schools have, before the start of the academic year to allow parents to make informed decisions at that point rather disrupting their child's schooling a term or two into the academic year.

Clearly if this information had been provided in line with the schools own policy of 'trying to provide a terms notice of any fee increases' the terms fees in lieu of notice would be waived (if this increase was greater than 5%). The school's refusal to provide the information has allowed them to enforce the terms fees which is what they are now doing with us. The approximate cost of £6000 is not insignificant and we consider this to be extremely unfair.

We're therefore seeking any advice or opinions people may have. We understand that contractually, and to the letter of the law, we are liable for the term's fees but do we have any other legal recourse for appeal given the extenuating circumstances the VAT legislation has created and the unfair position the school is taking which appears to be at odds with it's own policy of fairness to parents?

Any advice and views gladly received....

When are you looking to withdraw him? From the end of this term? And they want you to pay the next term's fees (Jan-April) in lieu of notice?

Or do you mean you withdrew him before he started, and it's this current term's fees that is being disputed?

We understand that contractually, and to the letter of the law, we are liable for the term's fees

You know the answer, you've written it in your OP.

I do think this is tricky - realistically the writing was on the wall about school fees and vat - so to even consider starting this year without being reluctantly prepared for a 15% worst case bump seems brave. But - it is not helpful at all that the school has been unable to share its thinking.

I think if you have taken your child out already (ie they did not start the term), then probably you are liable for the fees for this term unfortunately (you said you knew about the 8% a month after you signed - so from April?). If it is next term, and they haven’t yet been able to give you a ballpark figure, I think you are on much stronger ground if it is as expected a significant rise.

Sorry to hear you are in this situation.

They haven't increased the fee though. It's a tax.

They haven't communicated with you whether they can reduce the current fees in a way that means the 20% tax is added to a lower amount.

I have sympathy for you. Noone wants a big bill they can't afford but I dont think you can argue they haven't given notice of a fee increase as there hasn't been one.

I have a tiny bit of sympathy for the school as the draft guidance has only just been issued on 10 October and lot of schools were just taking a guess as to what would be reclaimable. Which is ok if you have good reserves to cover any mistakes by a few percent. I also think it's brave to be public on what you will do before the budget as there may be a big increase in employer NI contributions which also affects a school running costs.

We have withdrawn him already - so he didn't take up a place at the school from the start of this current Autumn term. They want us to pay for the Autumn term in lieu of notice.

I think you might have a winnable case here.

I have a faint recollection that there has been precedent that increases to fees must be made in time for those who no longer want the service at the new cost to be able to give notice without penalty. The school is therefore obliged to give you sufficient time, and the contract is therefore unfair on this point as it does not conform to previous legal rulings

@prh47bridge - does this ring bells with you?

So the vat situation is a red herring. You chose for him not to take up the place so owe the autumn term fees in lieu of notice. You were naive not to realise an annual fee increase was to come,

You signed the contract . I know plenty of people who haven’t given the notice and had to pay in lieu . Occasionally you hear of fees being waived if the school manage to fill the place . Effectively what you did was take a place they could have sold to someone else . The fees in lieu cover the cost you’ve caused them.

School fees do increase and at the very least you should have factored in at least 5% . VAT has been the elephant in the room for quite sometime too.

Our school still haven’t told us what VAT they will pass on - until the budget and the resulting change of tax law really they would just be guessing. Some schools are taking a gamble to keep relationships on track with existing customers . You aren’t an existing customer though .

I do sympathise with you - being stuck in the GCSE year trap myself

You may have an argument but I agree with a previous poster that you should have considered the likely annual increase given cost of living and inflation. Private schools have consistently increased their fees above the rate of inflation. Read the small print and see if there is wriggle room, but I do think you’ve been a bit naive.

You are liable for 1 terms fees from the point of notice. VAT or not, you will need to pay 1 term. It isn't challengable, The VAT risk has been known for more than the period you were considering signing up for a school, and actually is no more concrete now than it's ever been. There is the Autumn statement and then the legal challenges which will start once implementation commences in January.

Anything can happen still, you chose the path you believe it will go, your decision your consequence.

Unfortunately op I don't think you have any chance here. You've signed the contract stating this terms fees are due even though you haven't taken the place. The vat, as has been said, is not an increase in fees, it's a government levied tax, therefore the school haven't breached their terms regarding fee increases as the tax is not part of the fees. The school just collect on the governments behalf, and yes I do understand that they may be able to reclaim some of it. It would be helpful if they'd made their intentions regarding whether they were able to mitigate some of the increased cost, but they're not obliged to do so.

On checking the contract T&Cs we noted that the school reserves the right to increase fees but would always 'try' to provide a terms notice and if the increase was ever greater than 5% the terms fees in lieu of notice on withdrawal would be waived.

You need to check the exact wording of the Ts & Cs. It should be clear. Does the waiving of the notice requirement only apply if there is less than a term’s notice given by the school AND it’s more than 8%? ie, if it’s more than 8% but the school have given more than a term’s notice, are you required to give a term’s notice? Or, is your notice requirement waived if the fee increase is more than 8% regardless of when school gave notice?

If I read correctly, the VAT position is irrelevant. You withdrew your child before the start of the autumn term, a full term before the VAT is being introduced.

It sounds like the school did give parents this opportunity though. From the OP, it sounds like notice of the fee increase was given before the start of the summer term, so parents would have had time to give notice to avoid the autumn term fees.

I had assumed that as OP stressed that the school undertook to "try" to provide a term's notice, that they had not actually done so, and so she was therefore prevented from giving the correct notice to exit without penalty. Because "try" really isn't good enough, and isn't reasonable given the outcome of previous legal challenge.

If my assumption is wrong, and the notice of increase was given to parents in time, then yes I agree with other posters that OP is indeed bound by the usual notice period

OP states that they were given a term's notice of the 8% increase, so the only question is around any increase due to the imposition of VAT.

Without seeing the contract it is impossible to be sure (and even with the contract it may not be possible). However, I note on checking a few independent schools that they state their fees are exclusive of any applicable taxes. If this school specifies its fees that way (which would be sensible) and the total amount payable goes up by less than 20% the school has actually reduced its fees, not increased them.

What OP may be saying, therefore, is that the school haven't told her how much they will reduce their fees, so now, worried that they won't reduce their fees at all, she has taken the decision to withdraw her son without giving the notice required by the contract. I can't be certain, but if this is the situation I suspect the courts would take the view that OP is bound by the contract and therefore has to pay a full term's fees (including VAT) in lieu of notice.

As a general comment, VAT on fees was telegraphed before the summer term. The election was earlier than expected but VAT was always coming. We also know fees go up in independent schools. Sometimes at above inflation rates. We all know private education costs escalate for parents. I would expect parents to look closely at their funds to make sure they can afford these schools well before they sign the contract. It’s very expensive to make an error on what you can afford because the contracts are usually watertight. The schools are not easily able to replace the dc who didn’t start.

Seems highly likely that you are liable OP. Imposition of VAT = / = fee increase. Ime school fees are always stated to be ‘exclusive of VAT’. Indie schools enforce this clause to the hilt because they don’t want empty places. You could argue the toss but the juice probably isn’t worth the squeeze.

The VAT increase seems a red herring in this case.

As an aside, I don’t think anyone should consider private school unless they can easily swallow at least a 10% fee rise per year.

Curious to hear other people's experience regarding New Year invoice. My daughters school have reduced term fees by almost almost two thousand and only added five percent VAT.

Is the vat shown separately at 5%. Or does it look like 5%.? What did they say to parents last term about vat?

VAT must be charged at 20%. I presume @Widow2019 means that the fees were around £16k, they've reduced them to £14k which, with VAT, comes to £16.8k, an increase of 5%.

@prh47bridge Yes. That’s what I was getting at. It looks like 5% but it’s 20% on lower fees.

Sorry for delayed response..they are only passing on 5% currently. Clearly who knows what will happen in the future but for now with VAT this terms invoice was £4200.

Yes @Widow2019 , this is very common, my ds's school lowered the fees and added 20% and the increase is 9% to parents.

But come Sept 2025 the increase will be more for everyone.

Join the Facebook group Education not Taxation, it's very active, 24k members.

Maybe they could have been more communicative but schools informed parents as soon as they knew and the government were very slow in implementing and still are

It's all a mess, but will be seen as a win - either way I don't think there's anything you can do, it's been disorganised and haphazardly rushed through as a new VAT and the school kept you informed