Parents who prepaid school fees through “fee in advance” schemes in an attempt to avoid the newly applied VAT on private school fees could face legal action, tax experts have warned.
An investigation by the Daily Telegraph found that elite UK private schools, including Eton and Winchester, received over £500 million in prepaid fees last year. These payments were made before the Labour government’s January 2025 VAT implementation on private education, which added 20% to school bills.
Tax Experts Warn VAT May Still Be Due
Experts told The Guardian that Her Majesty’s Revenue and Customs (HMRC) is expected to closely examine the legality of these schemes. The key issue lies in whether prepayments specified exact terms and fixed prices. Without this, HMRC may treat these payments as taxable when each term’s invoice is issued.
Dan Neidle, tax lawyer and founder of Tax Policy Associates, explained:
“Many schools used these schemes like deposits. But VAT applies when each year’s fees are invoiced. If HMRC challenges this, it could mean big bills for schools and parents.”
Top Schools Could Face Legal Battles
Schools such as Brighton College, which accepted £50 million in advance payments, and Eton, which took in £53 million, could find themselves entangled in long legal disputes. Both schools charge around £63,000 per year, including VAT, for boarding students.
Legal experts say that any fees prepaid after 29 July 2024 — the day of the Treasury’s formal VAT announcement — are particularly vulnerable to being taxed, and HMRC could take up to four years to initiate investigations.
Government Eyes Long-Term Revenue Boost
The government has defended the policy, stating that the Office for Budget Responsibility already accounted for fee in advance schemes in revenue projections. Ending tax breaks for private schools is forecast to raise £1.8 billion annually by 2029-30.
“This will fund 6,500 new teachers and raise standards in state schools,” a government spokesperson said, highlighting that 94% of UK children attend state institutions.
The liability hinges on how each school’s prepayment scheme defines its “tax point.” If the money was not linked to specific terms or services at the time of payment, VAT may still apply.
Labour’s Pledge Created One-Off Loophole
Labour’s 2024 manifesto promise to add VAT to private school fees led many schools to encourage early payments, turning long-standing discount schemes into tax avoidance tools.
Traditionally, such schemes were used in divorce settlements or as prepayment incentives. However, the VAT rule change created a one-time tax-saving window — now under threat as HMRC prepares to scrutinize them.
