Private school parents may be dodging Labour's VAT by paying fees up front
Britain's most expensive independent schools were paid hundreds of millions of pounds in fees in advance last year, before the 20 per cent tax was implemented from 1 January 2025.
The country's top private schools received £515million in advance fees in 2024, marking an increase from £121million the previous year, analysis of the latest annual accounts by The Telegraph has revealed.
Consequently, the richest parents might have avoided as much as £103million in the tax – and the overall figure could be far higher as there are more than 2,600 independent schools across the UK.
Some parents tried to pay for five years' fees in advance. This would have taken them to the next general election when the policy could be overturned.
Experts have warned the large scale of up front payments could hit the government's plans to raise revenue.
Dan Neidle, the founder of Tax Policy Associates, described the level of prepaid fees as 'extremely high'.
Mairéad Warren de Búrca, managing director at Alvarez and Marsal Tax, told The Telegraph: 'It's not surprising that schools would have done this type of thing with parents and maybe encouraged parents to jump on the prepayment bandwagon.
'Only the very rich can afford to make those advance payments, or those with extensive wealth … so I'm not entirely sure they [the government] have managed to do what they intended to do.'
However, the treasury said the use of prepayment schemes was factored into the forecasts made by the Office for Budget Responsibility (OBR) when estimating how much money could be raised by the VAT policy.
Fees paid via prepayment schemes, which are used to pay for one or more years of a student's education up front, have surged across the country's most expensive schools, according to the analysis.
Brighton College, the UK's most costly independent school, received £50.1million in prepaid fees last year, an increase from £4.1million the previous year, the findings showed, with the number of pupils under the advance scheme increasing from 86 in 2023 to 819 the following year.
Meanwhile, fees paid in advance at Eton College, where fees may cost over £63,000 in 2026, shot up from £16.6million in 2023 to £52.7million the next year, the research found.
Labour has insisted that its VAT raid is aimed at the UK's richest families, with more than £1.8billion per year set to be raised for state schools by the end of the decade.
But critics argue it is smaller independent schools that are likely to be hit the worst by the policy.
The Telegraph reported that more than 50 private schools have already either closed or announced they will soon after the VAT policy was imposed, while the government estimates 100 schools could shut over the next three years.
A UK government spokesperson told the newspaper: 'The Office for Budget Responsibility has already factored in the increased use of prepayment schemes in its revenue forecasts.
'Removing tax breaks for private schools is expected to raise £1.8bn a year by 2029-30.
'This funding will help us recruit 6,500 new teachers and improve standards in state schools, which educate 94 per cent of children.'
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