Navigating VAT on Independent school fees: How estate and energy strategies can mitigate the impact

Introduction 

As the UK gears up for a General Election on 4 July 2024, independent schools face a pressing financial concern: the potential impact of Value Added Tax (VAT) on school fees. This looming change necessitates a proactive approach from educational institutions to mitigate its effects. 

Much has been said on this subject but in this article, we delve into the implications of VAT on school fees in the independent sector and focus on how strategic estate and energy management can offer solutions to navigate this challenge effectively. 

VAT Recovery on building works 

With the imposition of VAT on school fees, independent educational institutions are confronted with the need to reassess their financial strategies. One avenue for mitigation lies in understanding the VAT recovery mechanisms available for building and renovation work. Schools should record all building and renovation projects conducted over the past decade with total expenditures exceeding £250,000. By doing so, they position themselves to secure partial VAT recovery on these costs, offering a potential avenue for financial relief amidst the VAT imposition. 

Timing Major Capital Works: 

Another crucial aspect for schools to consider is the timing of major capital works to their estate. VAT recovery on building work exceeding £250,000 hinges on the completion date of the renovation project. Hence, it is prudent for schools to consider the timing of such works, aiming to complete them after the introduction of VAT. By aligning renovation timelines with VAT implementation, schools can maximise their VAT recovery potential and mitigate the financial burden associated with VAT on school fees.  

Energy Efficiency as a Mitigation Strategy 

Energy costs loom large as a significant operational expense for educational institutions. In fact, energy expenditure often ranks as the second highest operating cost for schools, following staff salaries. Focusing on energy efficiency measures presents an opportunity for schools to offset the impact of VAT on school fees while enhancing long-term financial sustainability. Achievable reductions in energy consumption, up to 50%, are within reach for most schools through initiatives such as Solar PV panels, LED lighting upgrades, heating controls optimisation, and behavioural change programs. A case could be made for using funds made available from the deferment of other capital projects to deliver energy projects that offer a strong return on investment. 

Energy saving examples 

• Solar panels can supply around 25% of a school’s electricity at a cost of around 8p/kWh and have a payback period of 3-6years. In the last year, Barker have designed and managed the installation of over 200 solar PV arrays for UK schools. 
• High efficiency LED lighting can generate a 20% saving in electricity usage. Did you know, most lighting projects are carried out in term time with zero disruption to teaching? 
• Following a heating system audit for an independent school in Hertfordshire, Barker’s engineers identified and delivered £60,000 ongoing annual savings simply by optimising heating controls, programmers and building management systems with no capital expenditure.