Business rates are charges imposed on most non-domestic properties throughout the UK by local councils. As a significant revenue source for local governments, the income from business rates is crucial for the funding of local services, such as children’s social care, and for broader priorities of the government, like education. As business rates are devolved to local governments, the rates and computation of the business rates may vary depending on the location of the property.
Until recently, business rates might not have been a major concern for private schools in the UK due to their eligibility for business rates relief. However, a recent policy change announced by the Labour government means this relief will no longer be available, leading to higher bills for private schools. This article examines the implications of this policy shift and the next steps for private schools in the UK.
Business Rates Relief on Schools
A business rate relief available to local businesses is the charitable rate relief. Properties qualifying for this relief receive 80% deductions from their business rates bill. To be eligible for this relief, the property must be used by either a charity or its trustees or a community amateur sports club (CASC).
As per the government’s report in 2022, around 50% of private schools in England benefit from this exemption due to their charitable status.
Impact of the Policy Change on Private Schools
To increase revenue and support state education funding, the government announced the removal of business rates relief for private schools on 29 July. As a result, private schools will lose their charity status and will be required to pay full business rates liability from April 2025.
The impact of the business rates on private schools will vary from school to school. However, the government expects a limited impact on the average school fees due to the increased rates liability.
Recognising that the needs of some students with special educational needs can only be met in private schools, the government will address the potential impact of these changes for students with Education, Health, and Care Plans (EHCP). The government plans to consult with schools before finalising the policy change.
Computation of the Business Rates on Private Schools
Business rates are calculated by multiplying the property’s rateable value by the relevant multiplier. Properties with a rateable value above £51,000 are subject to a standard multiplier of 54.6 pence per year, while those below £51,000 have a multiplier of 49.6 pence.
The relevant rateable value of a company is the estimate by the Valuation Office Agency (VOA) of how much it would cost to rent the property for a year. To calculate the rateable value, the VOA may ask the schools to provide rental information about their property. For providing this information, or for anything else, schools need to contact the VOA.
Illustration of the Business Rates Calculation
Lincoln Academy, a private school in England, has a rateable value of £60,000. Using the 2024 to 2025 standard business multiplier, which is 54.6 pence, the school’s estimated business rates are calculated as follows:
£60,000 (rateable value) x £0.546 (multiplier) = £32,760
Therefore, a private school with a rateable value of £60,000 will pay £32,760 in business rates for the tax year 2024/25. If the Business Rates relief was applicable, the business rates bill would amount to £6,552 (32,760*20%).
Business Rates Valuation Account
Similar to the Government Gateway login ID for individuals and corporations to deal with tax returns, businesses have a Business Rates Valuation Account. Businesses, such as private schools, can use this account to perform several tasks, including:
- Report changes to the Valuation Office Agency (VOA) that might affect the property’s rateable value.
- Challenge the accuracy of the property’s rateable value.
- Appoint an agent to deal with the Valuation Office Agency (VOA) on their behalf.
Implementation of the Policy Change
The change in the business rates policy will be legislated through the local government finance bill led by the Ministry of Housing, Communities, and Local Government (MHCLG). This amendment to the Local Government Finance Act 1988 is scheduled to take effect from April 2025.
It’s important to note that business rates are localised to local councils, so this change only applies to private schools situated in England, unlike the VAT legislation, which affects all private schools in the UK.
Conclusion
The recent changes to business rates policy will significantly impact private schools in the UK, particularly those that previously benefited from business rates relief due to their charitable status. As these schools face increased financial liabilities starting from April 2025, they will need to adapt their budgeting and operational strategies to manage the higher costs. While the government anticipates minimal effects on average school fees, the full financial implications will vary across institutions.
Private schools must stay informed about the new legislation and consult with the Valuation Office Agency (VOA) to ensure accurate rateable values and compliance with the updated regulations. Ultimately, this policy shift underscores the evolving landscape of educational funding and the need for private schools to remain agile in responding to such changes.
