Charitable status and independent schools

Charities, which must be for the “public benefit”, are eligible for some tax exemptions and reliefs. Independent schools can be charities although not all are set up in this way. Views differ on whether charitable independent schools which charge fees should be able to benefit from tax concessions.

This briefing deals with the law affecting the charity status of independent schools in England and Wales with a short section on the law in Scotland in section 7.

What is a charity?

The Charities Act 2011 defines a charity as an institution which is established for charitable purposes only and is subject to the jurisdiction of the High Court. The Act lists descriptions of a charitable purpose and states it must be for the public benefit.

The advancement of education is one description of a charitable purpose and so independent schools are capable of being charities. Educational charities, like all other charities, must demonstrate they are for the public benefit. There is no statutory definition of what this means.

Number of independent schools with charitable status

In 2022 the Government said around half of independent schools in England were registered as charities.

More recent responses to parliamentary questions have reconfirmed the percentage remains about the same. The 2023 Annual School Census by the Independent Schools Council (ISC) found that 70% (978 out of 1,395) of their member schools across the UK had charitable status. However, not all independent schools are affiliated with the ISC.

Public benefit guidance

The Charity Commission is legally required to issue guidance to promote awareness and understanding of the public benefit requirement. Charity trustees must consider the Charity Commission’s guidance when exercising any powers or duties to which the guidance is relevant. The Charity Commission’s current public benefit guidance (2013) replaced earlier guidance, published in 2008, which the Independent Schools Council challenged by judicial review (PDF).

Public benefit and benefiting “the poor”

Charity Commission guidance uses the term “the poor” and this terminology is used in case law. For that reason, the same term is used in this briefing.

The Charity Commission acknowledges there is no universal definition of “the poor”. It says the law relating to charities recognises it is a relative term, which depends on the circumstances in individual cases. The Commission guidance says it “does not just mean the very poorest in society and can include people of modest means”.

Charities (including charitable independent schools) may charge for the services or facilities they offer. However, where a charity’s charges are more than the poor can afford, its trustees must run the charity in a way that does not exclude them.

A charity’s trustees must decide what provision (above what would be minimal or token provision) to make to enable the poor to benefit from the charity. The Charity Commission has provided examples of how charitable educational establishments might enable the poor to benefit.

The Charity Commission’s analysis of the law relating to public benefit (PDF) sets out the main points emerging from a decision of the Upper Tribunal (PDF) in a case which considered the duties of charity trustees of charitable schools which charge fees.

Independent and state school partnerships

One way a charitable independent school which charges fees might fulfil the public benefit requirement is by collaborating with a state school. The January 2023 ISC census found 1,043 independent schools were involved in state school partnerships. This data is based on the ISC’s membership only.

Political consideration of charitable and tax status of independent schools

Government position

In February 2023, Nick Gibb, Minister of State for Education, said the Government had no plans to change the tax status of independent schools.

Earlier, in 2016, Theresa May’s Government launched a consultation on school policy in England (PDF). On independent schools, this proposed that, the “biggest and most successful” should face “exacting requirements”. Where able, schools should either sponsor state-funded academies, or should offer a certain proportion of fully funded places to those “insufficiently wealthy to pay fees”. The law didn’t change following this consultation, but the Government did agree a joint understanding with the ISC, on partnership working between state and independent schools.

Labour Party

The Labour manifesto for the 2019 General Election (PDF) pledged to “close the tax loopholes enjoyed by elite private schools and use that money to improve the lives of all children” adding that it would ask the Social Justice Commission “to advise on integrating private schools and creating a comprehensive education system.” “Private school” is another way of describing a school that charges fees.

On 11 January 2023, the House of Commons debated a Labour motion calling for a new select committee to consider reforming the tax status of private schools, to raise funds to increase educational standards in the state school sector.

Shadow Secretary of State for Education, Bridget Phillipson, said Labour would require private schools to pay business rates and VAT. She said she did “not anticipate that the proposals would cover specialist provision […]. There are ways in which they can be carefully drawn to ensure that exemptions apply where they should”. The motion was defeated by 303 votes to 197.

The position in Scotland

Charity law and regulation is devolved. The main legislation is the Charities and Trustee Investment (Scotland) Act 2005. To qualify as a charity, an organisation must have exclusively charitable purposes and provide public benefit. Any conditions for being able to benefit (such as fees) must not be unduly restrictive.   

Following a review of the non-domestic rates system (business rates), the Scottish Government has removed the business rates reduction from mainstream independent schools registered as charities.

Further reading

The Commons Library briefing on Independent schools (England) (CBP-7972) looks at other issues relating to fee-paying independent schools.