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School VAT changes | Navigating the HR and employment law implications

Written by Jane Hallas on 25 November 2024

With 20% VAT set to be added to private school fees from 1 January 2025, removing previous exemptions, independent schools across the UK may soon face significant financial shifts.

State-funded schools are generally exempt from VAT on many goods and services, but independent schools have long managed varying VAT responsibilities, which already challenge their budgets.

The upcoming VAT changes will further increase operational costs, forcing many independent schools to reevaluate financial planning and consider cost-saving measures, many of which could impact their workforce.

This blog examines the employment law and HR implications of these changes, offering guidance to help school leaders navigate this transition effectively.

Potential impact on staffing and school structure

As schools adapt to the financial challenges posed by the upcoming VAT changes, careful budget reallocation and strategic planning will be essential to maintain stability and ensure essential operations remain unaffected.

In practice, this will involve a thorough review of expenditures and the identification of cost-saving opportunities, which may include staffing reviews and decisions relating to the workforce.

For example, schools may consider:

Restructuring: Schools may need to re-evaluate departmental structures and staffing levels. This can involve consolidating roles, reassigning duties, or merging departments to improve efficiency and cost-effectiveness.
Redundancies: In cases where budget constraints are particularly severe, redundancies may become unavoidable. To comply with employment law, any redundancy process must include proper consultation, fair selection criteria, and efforts to redeploy affected staff where possible. Employers must also account for often-lengthy notice periods outlined in staff contracts.
Contract reviews: Schools may also consider adjusting contract types to increase flexibility, such as moving to part-time or term-based contracts. However, this requires a legally compliant approach to avoid contract variations and employee rights issues.

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HR and employment law guidance for managing change

Implementing staffing changes due to VAT-induced budget adjustments requires a careful approach to meet employment law requirements and maintain a positive school culture.

Here are some key considerations:

Consultation and communication: Any restructuring or redundancy process should begin with open and transparent communication with staff. Schools are legally required to consult with affected employees, providing a clear rationale for any proposed changes and seeking their feedback. If 20 or more staff may be made redundant within the next 90 days, collective consultation is required with staff or union representatives to ensure compliance with legal obligations, promote fairness, and give employees the opportunity to contribute to the process. Effective communication during this period can help maintain trust and morale while minimising misunderstandings.
Support for staff: Schools should consider how they will support employees impacted by potential changes, such as offering outplacement services, mental health resources, and assistance with job transitions. This demonstrates a commitment to employee welfare, which is especially important in an educational setting.
Legal compliance and fair selection: Schools must use fair and objective selection criteria when making redundancy decisions. They must also ensure they are not discriminating against any group of employees, particularly in terms of protected characteristics under the Equality Act.
Employment contracts and policy reviews: Reviewing employment contracts, policies, and redundancy policies can help ensure that all HR practices comply with current employment laws. This includes ensuring contracts reflect any updated duties and obligations arising from restructuring.

Long-term strategy: Building resilience and efficiency

While VAT changes will add to schools’ financial burden, they also present an opportunity to optimise operations and improve long-term resilience. From an HR and employment practices perspective, these changes could encourage:

Operational efficiency: By streamlining operations, schools may find efficiencies in resource allocation, reducing the likelihood of needing further adjustments in the future.
Enhanced workforce planning: Schools can focus on proactive workforce planning, building a more agile workforce adaptable to financial and regulatory shifts.
Investment in training: Schools can invest in training to ensure staff are equipped to handle additional responsibilities, which may become necessary if roles are consolidated.

Next steps for schools

Maintaining stability during this period is essential to uphold your school’s reputation and the trust of parents, students, and the wider community.

With just over a month until the changes take effect, schools should review their budgets, organisational structures, and staffing requirements now to ensure they are effectively prepared.

Engaging qualified HR and legal advisers can help navigate these adjustments while ensuring compliance with employment laws and minimising disruption – not only to staff but to pupils too.