Private Schools Face Surge in Insolvencies as VAT and Tax Changes Bite

The number of private schools entering administration has doubled in the first half of 2025, a stark sign of the mounting pressures on the sector following the government’s decision to impose a 20 per cent VAT rate on school fees from January. According to recent data released by the risk advisory firm Kroll, 12 schools have gone into administration between January and July — twice as many as in the same period last year. The situation appears to be worsening, with four educational companies collapsing in July alone.

Removal of charitable status from independent schools in April has compounded their financial difficulties, stripping them of business rates relief and adding to rising operational costs. Many schools are now also contending with broader economic challenges, including higher employer national insurance contributions and increases in the minimum wage, which climbed by 6.7 per cent this year. Despite five consecutive cuts in interest rates over the past twelve months, borrowing costs remain at a relatively high four per cent, contributing to tighter financial conditions across the sector.

Experts attribute the rise in administrations directly to the newly introduced VAT burden and the loss of tax privileges historically enjoyed by independent schools. This trend is likely to persist, with Kroll suggesting that insolvencies in education could be 50 per cent higher in 2025 than in the previous year. Over fifty private schools are reported to have closed since the introduction of VAT on fees.

The increase in private school failures arrives amidst a wider but less dramatic uptick in company insolvencies across the UK. Official figures from the Insolvency Service reveal that 2,081 companies became insolvent in July, up from 2,053 in the previous month. Retailers, in contrast to the education sector, saw a slight respite, with 324 becoming insolvent in June, down from 348 in May.

Parents, anticipating the rise in school fees, have reportedly paid £500 million in advance in a bid to avoid the new VAT charges. This eagerness to pre-empt cost increases underscores the significant impact policy shifts are having not just on schools, but on families and the shape of the UK’s private education landscape.