Closure and redundancies after Steiner schools lose VAT exemption

Until January 2025, education and boarding provided by private schools were generally exempt from VAT, meaning that schools did not charge VAT on tuition fees. On 29th July 2024, the newly elected government announced that the exemption would be removed and from 1st January 2025 private-school education and boarding fees became subject to VAT at the standard rate of 20%.

Although VAT was charged at 20%, the Office for Budget Responsibility estimated that the effective rate would be about 15.4% of fee income, because schools would be able to reclaim VAT charged on some of their costs. For example, VAT paid on expenditure on building repairs and maintenance, computers and on accounting software could be reclaimed. This would partly offset the additional financial burden but introduce administrative costs such as registering for VAT, training to fully understand VAT taxation and how to use new or updated accounting software.

School leaders in the private sector warned that the VAT changes would force difficult choices at a time when many private schools were still recovering from the financial consequences of the Covid epidemic. Schools could pass the additional cost on to parents and risk losing pupils, absorb some of it through lower underlying fees, or reduce staffing and other expenditure.

The Steiner Waldorf Schools Fellowship (SWSF), now trading as Waldorf UK, is the national representative body for Steiner Waldorf education. Prior to the changes SWSF member schools were exempt from Vat. Their latest reports and annual accounts provide an opportunity to see what strategies and actions were taken and what the outcomes were for the schools.

The accounts of SWSF member schools show that cost-cutting has become common, that some schools have made redundancies, and that several remain financially vulnerable. At Drumduan School in Scotland, falling pupil numbers and rising costs contributed to the eventual closure of the entire school.

Before Drumduan closed there were 17 SWSF member schools: Cardiff Steiner School and Nant-yCwm (Wales),  Drumduan School and Edinburgh Steiner School (Scotland),  Holywood Steiner School (Northern Ireland). In England are Elmfield Rudolf Steiner School,  Greenwich Waldorf School,  Lancaster Steiner School,  Michael Hall School,  Norwich Steiner School,  Ringwood Waldorf School,  South Devon Steiner School,  St Paul’s Waldorf School,  The St Michael Steiner School,  Steiner Academy Hereford,  Waldorf Cambridge,  York Steiner School. A summary of each school’s reported response to VAT changes appears below.

Cardiff Steiner School

Cardiff Steiner School chose not to pass the full VAT increase on to families. It instead absorbed much of the cost while making only modest fee increases. The school appears to have maintained both pupil numbers and reserves during the 2025 year.

Drumduan School

Drumduan’s 2024 accounts acknowledged the possible loss of VAT relief in the following financial year. A working party was established to advise trustees on how best to mitigate the effect of the change. The 2025 accounts reported increasing pupil numbers and anticipated further growth. During the same period, a donation of £500,000 enabled the school to purchase its buildings and grounds.

In an addendum to the 2025 accounts, the school reported the closure of its lower and middle schools in February 2026. The upper school closed in March, leaving only the kindergarten and parent-and-child activities. Closure of the Early Years provision was announced in May and Drumduan formally closed on 30 June 2026.

Despite its efforts, the addendum says that pupil numbers did not increase through 2025 because of the cost-of-living crisis. Finances worsened as a result of higher employment costs, the abolition of the VAT exemption and the loss of business-rates relief.

Edinburgh Steiner School

Edinburgh Steiner School entered the VAT period after already taking substantial action to reduce expenditure. Seven posts were made redundant during summer 2024 in response to the widening gap between income and expenditure.

The school reported that considerable effort was made to retain families following the imposition of VAT. A large donation provided financial support against the effects of the change during the year. The school consequently moved from a deficit of approximately £211,000 in 2024 to a surplus of approximately £149,000 in 2025, although the donation means that the reported surplus should not be regarded as evidence that the underlying problem has disappeared.

Elmfield Rudolf Steiner School

Elmfield’s 2025 accounts do not explicitly identify VAT as a cause of its financial difficulties or describe a distinct VAT mitigation policy.

The school was nevertheless already engaged in cost reduction following falling pupil numbers and earlier deficits. Redundancies and reductions in expenditure had therefore begun before the full effect of the VAT change could be measured. Elmfield is best regarded as a financially pressured school whose accounts do not allow the consequences of VAT to be separated from its existing problems.

Greenwich Waldorf School

Greenwich’s accounts for the year ending in 2025 were overdue at the time of writing. The latest available accounts therefore pre-date the introduction of VAT on school fees and cannot show how the school responded.

Its earlier financial position was already weak, so the continued delay is notable.

Holywood Steiner School

Holywood Steiner School describes VAT as the greatest recent threat to its financial sustainability. It reports that 22 pupils left during the 2024/25 academic year because of the increased cost of fees including VAT. Sixteen new pupils subsequently joined, partly offsetting those departures.

Overall enrolment nevertheless fell from 152 to 134. The school reduced expenditure by approximately £34,000, largely through lower staffing costs, and recorded a surplus of just over £20,000.

VAT registration did provide one offsetting benefit: Holywood was able to recover VAT retrospectively on some capital expenditure and purchases and to reclaim VAT on qualifying future expenditure. Even so, the trustees warn that falling or static enrolment would place the school at risk of returning to an unsustainable deficit.

Lancaster Steiner School

Lancaster adopted an unusual approach. Trustees deliberately kept the school small enough for its relevant fee income to remain below the VAT registration threshold.

The school had only 14 pupils during 2024/25. Trustees state that limiting growth gave existing families a full year in which to prepare for the eventual addition of VAT to fees. The school expects to register for VAT in August 2026 as income rises above the threshold.

This policy postponed the immediate effect of VAT, but it did so by deliberately constraining pupil numbers and fee income. Lancaster recorded a surplus of approximately £9,000 and held free reserves above its stated target.

Michael Hall School

In its 2024 report, Michael Hall said that the VAT charge would be passed on to parents in full. Trustees warned that the change could lead to a fall of around 10% in pupil numbers. The school also began containing staffing costs by not replacing all departing staff, redeploying existing staff and amalgamating roles. Fee assistance had already been restricted, with the maximum award reduced to 30% of fees.

By the 2025 report, the anticipated fall in enrolment had materialised. The school said pupil numbers had declined by 10% after VAT was introduced and forecast a further 10% reduction for 2026/27. The number of families receiving fee assistance rose from 42 to 48, although individual awards remained capped at 30%.

The school was now operating at a smaller scale and leadership roles were trimmed accordingly. Staff costs were again reduced during the 2025 financial year. Trustees also retained a contingency plan to reduce Michael Hall to a single-stream school should pupil numbers continue to fall.

During the same period, Michael Hall completed the sale of three residential properties. The proceeds were placed in a separate account for future investment in the estate and in income-generating uses of the site, including lettings and events. The school was also dealing with the loss of business-rates relief and higher employer National Insurance costs, so VAT was only one part of a broader increase in financial pressure.

Nant-y-Cwm Steiner School

Nant-y-Cwm’s 2025 accounts reveal substantial financial strain but do not isolate VAT as a separate cause of its financial position. The school recorded a deficit of approximately £63,000, compared with £37,000 in the previous year. Although income increased slightly, rising operating and staffing costs more than absorbed the gain, while gross profit fell from approximately £56,000 to £35,000.

The school ended the year with net current liabilities of approximately £25,000 and insufficient free reserves. Unpaid fees also increased significantly, with trade debtors rising from approximately £43,000 to £63,000. At the same time, bursaries, discounts and fee concessions almost doubled to approximately £57,000.

The accounts also disclose a related-party loan of £153,060 from trustee M. W. Hargreaves, repayable over three years.

A post-year-end report makes clear that the school’s principal difficulty has been pupil retention. Recruitment continued to attract new families, but departures weakened the overall roll and income failed to grow as expected. The school began September 2025 with approximately 57 pupils in the main school and 30 children in kindergarten.

Trustees describe 2025/26 as a “bridge period”. Their recovery plan relies on increasing the main-school roll to approximately 60-65 pupils by September 2026, maintaining kindergarten numbers, restructuring the kindergarten, improving fee collection and implementing wider cost savings. The report concludes that there is a credible route to sustainability, but only if pupil-number forecasts are achieved and the planned savings are successfully delivered.

Norwich Steiner School

Norwich describes the introduction of VAT as both a financial and administrative burden. Registering part-way through the school year required additional staff time, specialist assistance and new accounting software, some of which will remain an ongoing cost.

The school reports that VAT slowed the rate of new enquiries and caused some families to seek fee assistance. The simultaneous removal of business-rates relief added a further recurring expense.

Norwich recorded a deficit of approximately £107,000 and expected reserves to fall further while its recovery plans took effect. A staffing review after the financial year resulted in two posts being made redundant. The trustees also acknowledge the risk that higher fees may reduce pupil numbers, which would in turn place still greater pressure on income.

Ringwood Waldorf School

Ringwood reports that VAT, increased employer National Insurance costs and higher business rates placed considerable pressure on its budget. The school says that careful financial management, selective use of reserves and support from its community allowed it to remain stable.

The trustees intend to continue supporting families while strengthening the school’s finances. They have increased expenditure on marketing in the hope of growing pupil numbers without a corresponding increase in staffing.

The report states that VAT was introduced in January 2026. This appears to be an error in the accounts: the national change took effect on 1 January 2025.

South Devon Steiner School

South Devon chose to protect families from most of the immediate increase. When VAT was introduced, the school reduced its underlying fees by 15%, meaning that parents bore only a relatively small net increase while the school absorbed most of the additional VAT charge.

That decision had a substantial internal cost. The school restructured its workforce, removing 11 positions and generating projected annual savings of approximately £126,000. Pupil numbers initially remained stable at 250, but the school moved from an operating surplus of approximately £172,000 to an operating deficit of approximately £66,000.

Fees were increased by a further 6% for 2025/26, staff received no salary increase, and the school budgeted on the basis of pupil numbers falling to 222. Trustees forecast that these measures would return the school to a modest operating surplus.

St Paul’s Waldorf School

St Paul’s does not discuss the imposition of VAT explicitly in its 2025 trustees’ report. Its accounts instead present a comparatively positive picture: higher-than-expected pupil numbers and conservative budgeting produced a surplus above expectations.

The school continued to provide substantial fee support. At the year end, 87 children had some form of discounted-fee arrangement, including assistance for families in financial need.

On the evidence presently available, St Paul’s appears to have weathered the first part-year of VAT without the redundancies or serious financial deterioration reported elsewhere, although the accounts do not explain how much of the VAT cost was passed to parents or absorbed by the school.

The St Michael Steiner School

The St Michael Steiner School’s 2025 report makes no explicit reference to VAT or to any particular measures taken in response to its introduction. Average pupil numbers increased slightly from 130 to 134, and the school moved from a loss of approximately £24,000 to a surplus of approximately £34,000.

Its balance sheet also improved, although the school remained below its own reserves target and cash at bank fell from approximately £414,000 to £207,000. Means-tested bursaries worth just over £69,000 continued to support 11 pupils. On the evidence available, St Michael appears to have weathered the first part-year of VAT without reporting serious disruption.

Steiner Academy Hereford

Steiner Academy Hereford is state-funded and does not charge private-school tuition fees. The removal of the VAT exemption did not therefore apply to it in the same way as it applied to the independent Steiner schools. It does not serve as a useful comparison when examining how fee-charging schools mitigated VAT.

Waldorf Cambridge

 

Waldorf Cambridge identifies VAT and the loss of business-rates relief as two of the principal tests faced during the year.

The report gives more detail about business rates than VAT. Premises costs rose from approximately £128,000 to £178,000 after the school began paying full rates in April 2025. Total income increased to approximately £1.064 million and the school reported a surplus of approximately £38,000.

That result nevertheless depended on voluntary donations of nearly £43,000. Without those donations, the school would have recorded a small loss. Its liquid assets exceeded short-term liabilities by only about £13,000, leaving very little financial room for unexpected costs or investment in the school buildings.

York Steiner School

York’s 2025 trustees’ report does not mention VAT or describe any special mitigation measures. The school presents a comparatively buoyant picture, with continuing investment, plans to extend its educational provision and the recruitment and restructuring of senior leadership roles.

In the absence of an explicit statement, it should not be assumed either that VAT had no effect or that particular staffing and management changes resulted from it. The most that can safely be said is that the first set of post-change accounts contains no reported VAT-related crisis.

VAT Exposes a Movement in Decline

Excluding the state-funded Steiner Academy Hereford, only a minority of SWSF member schools appear to have passed through the first VAT year without significant disruption. For most, the tax added to existing problems: low or falling pupil numbers, weak liquidity, rising employment costs, dependence on donations and, in several cases, long-running deficits.

The accounts do not show a movement brought low by a single government decision. They show a network of very small schools whose financial model was already precarious. Some attempted to protect parents by absorbing much of the cost. Others passed on more of the increase, cut staff, drew on reserves or relied on exceptional donations. Lancaster postponed VAT registration by deliberately limiting its own growth. Drumduan closed.

Drumduan’s final explanation also deserves scrutiny. The school cited the loss of business-rates relief as one factor in its collapse, although Scottish independent schools had lost that relief in April 2022, almost four years before Drumduan finally closed. VAT was a serious new pressure, but it was not an explanation for every weakness that had accumulated before it arrived.

What is strikingly absent from the accounts is any sign of a convincing sector-wide response Steiner Waldorf Schools Fellowship. The national body has spoken of renewal, professionalisation and rebuilding, yet the membership base continues to contract and several remaining schools are surviving through retrenchment rather than recovery.

The deeper question is therefore not whether VAT damaged Steiner schools. It plainly did. The question is why so many of them were in such a fragile condition that one additional cost could trigger redundancies, emergency restructuring, declining rolls and, in Drumduan’s case, closure. The accounts suggest that the problem lies not only in government policy, but in the business model on which much of the UK Steiner school movement has long depended.