Will the VAT changes lead to more insolvencies in the private schools’ sector?
Insolvency Practitioners Antony Batty & Company suggest that the jury is out on whether the policy will lead to increased insolvencies and detail the role that IPs play when insolvency does strike.
Elaine Wilkins (Director, Antony Batty, Bournemouth office) said:
“It is too early to tell if levying VAT on private school’s fees will lead to an increase in insolvencies, whether nationally or here in our local Bournemouth, Christchurch and Portsmouth area. Data from the Government register of Private Schools (October 2024) showed that 80 private school closed per year over the last decade. However, the International Accounting Bulleting reported in September 2024 that the measure would lead to between 10% and 20% of private schools closing within 3 years. That equates to between 260 and 520 closures. The former figure is roughly on trend for private school closures, the latter is more than double the trend figure, so would represent a significant increase.”
However things play out, The VAT charge will mean a further additional cost on private schools, which they must absorb or pass onto the parents as increased fees, fully or partially.
Headteachers of smaller, specialist private schools (those most likely to be at risk) say they have little room in already-squeezed budgets to make cuts, leaving few alternatives but to hike fees by the increased cost of VAT – and parents are likely to turn down places as a result.
This may result in a fall in the number of fee-paying pupils at private schools, their main source of income, which against the backdrop of existing difficult trading conditions, may increase the likelihood of further insolvencies.
The role of Insolvency Practitioners
Elaine continued: “There is no doubt that some private schools are worried about their future. We have experience of liquidating a private school in the local area – St. John’s College, Southsea in August 2022 – which demonstrated the specific characteristics of a private school liquidation, and the role of Insolvency Practitioners.”
Insolvency Practitioners:
- Assess a school’s financial situation and advise on the best course of action
- Ensure VAT compliance
- Negotiate with HMRC
- Find a buyer, if possible, or liquidate if absolutely necessary
- Help manage redundancy payments
- Provide governance support and site security, if required
- Provide special provision for keeping pupil records safe and confidential
Schools should take advice early.
The levying of VAT on private schools’ fees will add significantly to the financial pressures many are facing and could lead to an above trend increase in private schools’ insolvencies. The scale of this will only become clear in the coming months.
The sooner a Private School that finds itself facing insolvency contacts an Insolvency Practitioner, the more that can be done to help.
https://www.antonybatty.com/