VAT on School Fees and the impact on separated families – who is footing the bill?

One of the first announcements of the new Labour government following their election victory in July, was the elimination of the VAT exemption on private school fees. This change will impact all families with children in private schools but, for those who are going through, or have been through a separation, it is particularly significant. The subsequent news that VAT will be applied mid school year, from January 2025 made this even more of a pressing issue.

In the context of a divorce, a couple will need to make important decisions about how to fund two households from the financial pot that previously funded one. Attitudes towards school fees and whether they are a necessity or a luxury vary greatly according to individual families and individual children.

When there is a disagreement about whether school fees are affordable, the court will give priority to ensuring that housing and income needs are met. Only if there is sufficient funding remaining will an order be made to allow school fees to be paid. This can either take the form of a school fees order from income, or the payment of a slice off the top of the capital to be set aside for this purpose. It is therefore important at an early stage to determine (a) the affordability of the fees going forwards, and (b) the priority each parent gives to keeping children in fee paying schools.

Change of schools?

The decision of which school a child goes to is an important one and should therefore be an exercise of joint Parental Responsibility, (a legal concept which defines the rights and responsibilities an individual has in respect of a child). If an agreement cannot be reached, the parents will be encouraged to engage in a ‘non court dispute resolution’ method such as mediation.

Mediation involves the parties meeting with an independent specialist family mediator to talk through the different options to see if an agreement can be reached. Collaborative law, round table meetings, early neutral evaluation, or arbitration are alternative options and can all be explored if parents cannot agree on whether a change of schools is appropriate.

If, having explored non-court dispute resolution to no avail, an application can be made under the Children Act to deal with this Specific Issue.  Ultimately the decision on which school a child should attend is a welfare issue and should be determined with the children’s best interests as the foremost consideration.

The issue of the cost of schooling is distinct from the welfare question and the Court is very unlikely to make a specific issue order for a child to attend a fee-paying school unless it is clearly established that it is affordable and was the intention of the parents.

Child maintenance and school fees

Child maintenance and monthly payments towards school fees can seem like one and the same but, from a legal perspective they are two distinct issues.  The Child Maintenance Service governs the amount of child maintenance to be paid by a parent who does not have the ‘day to day care’ of a child to the parent who does. The calculation is based upon their gross income, less pension contributions and will be discounted according to the number of overnights the children spend with that parent and whether they have other children living in their household. The child maintenance is designed to cover living expenses like food and clothes, not school fees and will take priority over them.

School fees orders

Within divorce proceedings, it is common for a financial agreement to be recorded in an Order that is binding on both parties, whether made by agreement or by a Judge at a final hearing. As part of this financial agreement the Court has the power to make a school fees order, which is a type of maintenance order, requiring a parent to pay, or continue to pay school fees of the children.

In deciding whether to make an order or not, alongside what is in the children’s best interests, the affordability will be a key question. The Court was asked to look at this issue in the case of GW v GH [2023] EWFC 298 (B) and it is a helpful one for parents to look at if they consider private school fees to be unaffordable. It was decided in that case that the Financial Remedy Court should not prioritise private education to the detriment of other emotional and physical needs of the children. In other words, the children shouldn’t have to sacrifice the quality of their life, living conditions, holidays etc to prioritise attending private school.

In certain situations, separated parents may look to ‘top slice’ a fund from their capital resources, prior to the remaining balance being made available to meet housing and other needs. To calculate an appropriate capital school fees fund, the quantum of the school fees, extras, estimated school fees inflation, the anticipated return/tax on the fund and now, VAT on school fees will need to be added. If a top slicing exercise has been carried out historically, it might now be an insufficient sum to meet the VAT and fees for the anticipated period.

Can a historic school fee order be changed?

It is perhaps, reasonable to think that, at the time of making a school fees order, an increase to cover inflation would have been anticipated, but rather less likely that a change to the VAT rules could have been foreseen three, four or even ten years ago when an order might have been made. Although many parents who have opted to send their child to private school will do what they can to maintain the status quo, it is inevitable that, for some families, the addition of VAT will make it unaffordable. An analysis by the Independent Schools Council (ISC) in October 2024 shows that, since the government announcement, the number of children in private education has already fallen by 10,000. For a parent who finds themselves subject to a school fees order that is no longer affordable, swift action should be taken.

The first step is to open up communication with the other parent and, indeed the school. An alternative arrangement can be reached between parents for who will pay what, but, if this is not possible, and a discount cannot be agreed with the school, an application can be made to the Court for a variation of the Order to change the terms.

This could include a change to require the costs to be shared between parents, if this is an affordable option.

If agreement is not reached, an application to vary an order should always be made before there is a risk of defaulting on the payments. Not only could this interfere with the educational provision but, importantly, a breach in the order could result in an enforcement application being made and interest being applied.

In deciding whether or not to vary the order, the Court will consider the financial circumstances, affordability and whether a variation application can be justified. It might be that the duration of the order is altered so that the children move to state education at a suitable time, for example between primary/prep school and secondary school, or that the other party makes a contribution when they haven’t previously. These types of applications are potentially costly in themselves, and pragmatism must be exercised to ensure that the legal fees do not become disproportionate, or in themselves causing the school fees to become unaffordable.

It is always recommended to seek tailored legal advice about issues relating to children and finances on separation. If you need assistance or more information about legal proceedings, mediation, or other non-court dispute resolution options, please contact us.

Alice Scambler is a specialist family solicitor, mediator and head of our Tunbridge Wells team.