Overview
From 1 April 2025, private schools in England that operate as charities will no longer be eligible for charitable relief on business rates. This follows the Non-Domestic Rating (Multipliers and Private Schools) Act, which received Royal Assent earlier in April 2025. Key implications include significant additional costs for private schools and strategic considerations for governance and structuring. (gov.uk)
Entity Setup Implications
- Charity status won’t shield from business rates: Even if an institution is a charity, if it's a private school providing education and boarding services, it’ll lose relief (gov.uk).
- Consider alternate models: Some schools may explore setting up separate entities that offer services others than core education, to retain certain reliefs—in consultation with legal and tax advisers.
- Governance changes: Entities may need to reclassify or reorganize for cost efficiencies and review funding models accordingly.
Tax Planning & Financial Impacts
- Cost increases: Schools previously obtaining relief will face full business rates bills. Financial projections must be updated to capture this additional expense from the 2025/26 year onward. (gov.uk)
- Fees and budgeting: To absorb cost increases, schools might need to increase tuition, reduce ancillary services, or reallocate budget funds.
- VAT considerations: Alongside business rates, private schools also lose VAT exemption for education and boarding services. Although distinct from rates relief, the combined effect can be material. (gov.uk)
Example Case Study
A private boarding school in England currently benefiting from business rates relief projects a £100,000 bill reduction annually. Losing that relief adds £100,000 cost per year—if student fees don’t cover this, the school must either raise fees or cut non-essential programs.
Actionable Strategies
- Early financial modelling: Run scenario models: (a) with relief; (b) without relief; (c) with partial cost-recovery via fees.
- Review legal entity structure: If parts of operation aren’t strictly education (e.g. facilities hire or catering), consider separating them into distinct entities possibly not subject to the same exclusion.
- Engage stakeholders: Inform parents, staff, and governing boards of impact well before the 2025/26 school year begins.
- Charitable status audits: Ensure charitable status remains appropriate and explore charitable reliefs on non-excluded activities where possible.
- Explore alternative funding sources: Grants, donations, fundraising may offset increased tax burden.
Conclusion
Losing business rates charitable relief represents a major shift for private schools, especially those operating as charities. It impacts entity setup, budgeting, and long-term sustainability. Early planning, thorough review of costs and entity structure, and possibly restructuring parts of the operations are essential to mitigate the impact.