The Treasury has confirmed that controversial VAT charges will be levied on private schools from January next year.

Labour will apply a 20% VAT charge to private education and boarding schools from January, drawing a line under speculation over when the policy, outlined in its General Election manifesto would come into force.

The Treasury announced on Monday that VAT would apply to payments made in advance for school terms starting after January 1 2025, including any payments made on, or after, Monday.

The party estimates the move will raise up to £1.5bn for state sector investment, including the pledge to recruit 6,500 additional teachers.

The decision to remove VAT exemption from private education providers has triggered a backlash from institutions and parents who fear it will make fees unaffordable and lead to the closure of some smaller schools.

However, the Government said VAT costs would not apply to pupils with the ‘most-acute special educational needs, where their needs can only be met in private schools’, or where a pupils’ education costs were funded by a local authority.

In those instances, local councils would be able to reclaim the VAT, it said.

And the Treasury said that VAT would apply to education and boarding costs but not further supplies and wraparound services, such as nursery care, childcare, school meals and holiday clubs.

State boarding schools will also continue to be exempt from VAT.

A technical note accompanying the Treasury announcement said “The government expects private schools to take steps to minimise fee increases’ by ‘cutting back on non-essential expenditure’.

And it said schools would be able to recoup some of these costs by reclaiming VAT they pay on goods and services used in the production of their ‘taxable supplies’, including capital investment in buildings.

Commenting on the announcement, Mollie Skinner, an associate at property consultancy, Fisher German, said: “Clearly, schools need to find ways to save money without impacting drastically on the education of their pupils – not an easy task.

“However, what some schools do not realise is that they can often better utilise their property assets to save money – or even generate new income.

“For example, some schools may have buildings or facilities which are no longer suitable for educational purposes. These could potentially be repurposed and let to community groups, for example, as a way of creating extra income.

“And certain independent schools may have older buildings which are less energy efficient than they could be.

“Ensuring they are insulated properly while maintaining their character can save a lot of money every year.”

She added: “It is astonishing just how many schools are paying far too much in business rates simply because they have assumed the rate the local authority charges is correct – a perfectly-reasonable assumption to make.

“In reality, many schools’ rates can reduce if buildings have had a change of use or have been altered.

“This is something schools rarely realise, and many local authorities are happy enough to collect the business rates without checking if it is still being charged correctly.

“Labour has also said that they would end business rates relief for private schools, so it is therefore even more crucial that valuations are correct.

“Every school will be different, and we would urge any school leaders and governors worried about their options to consider seeking expert advice on reviewing their property assets and how they can be best used.”