Issues within the private school sector
In January 2025, the government introduced VAT on private school fees and this seems to have led to a growing number of private school closures in the last year. For many schools it is not so much that this created a problem but rather than it accelerated an already existing one. In reality it has exposed some long-standing financial issues within the sector such as rising payroll and pension costs, affordability pressures on middle income families, state sector improvements and shrinking birth rates.
So what should Governors and Trustees look out for?
Schools at risk of insolvency often share several underlying characteristics, including:
- Cashflow tightening month by month and being artificially propped up by pre-payments for future terms.
- Unrestricted reserves are either insufficient, not meeting the requirements set out in the reserves policy or not genuinely available.
- Future commitments, particularly staffing and estates, are locked in at unsustainable levels.
- Over generous bursary and fee subsidies.
- Losing and not replacing key staff.
In many cases the true financial position only becomes clear when a critical payment cannot be met or when projections finally reflect reality. By that stage options are already narrowing. One of the most critical and often misunderstood turning points is when financial difficulty transitions into insolvency risk. A school may be considered insolvent if:
- It cannot pay its debts as they fall due (cashflow insolvency); or
- Its liabilities exceed its unrestricted assets, taking into account the real cost of closure (balance sheet insolvency).
At this point, the responsibilities of governors and trustees begin to shift. The focus moves away from solely acting in the interests of the school and achieving its objectives and towards protecting and minimising the loss to creditors.
What Governors and Trustees should do
It is therefore imperative that governors and trustees act promptly and pro-actively when there are concerns regarding the financial stability and sustainability of a private school. When there appears to be no prospect of the school avoiding an insolvency, governance obligations become more stringent. Governors and trustees are expected to:
- Act in the interests of creditors as a whole.
- Avoid worsening the financial position.
- Ensure decisions are informed, evidenced and minuted.
- Seek professional advice early.
- Maintain close oversight of cashflow and liabilities.
- If the school is a charity (and around half of all private schools are registered charities) seek additional guidance from the Charity Commission on what Trustees should do.
Failure to do so can lead to criticism, regulatory scrutiny and in some cases personal exposure.
Director
- 01603 877861
- 07919 896981
- jowatts@mw-w.com
- Prospect House, Rouen Road, Norwich, NR1 1RE
Licensed Insolvency Practitioner
- 01603 877546
- kellygoodman@mw-w.com
- Prospect House, Rouen Road, Norwich NR1 1RE
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Seek early advice
The earlier advice is taken, the wider the available solutions to try and rescue or restructure the school. Often the difference between schools that stabilise and those that close is timing. Where action is taken early, there is scope to:
- Restructure operations which could include reviewing and reshaping the curriculum or staff model in line with pupil numbers or charitable objectives.
- Identify protected or restricted funds and plan financials in accordance with charity regulations.
- Manage fee structures and bursary commitments.
- Explore mergers or partnerships with compatible educational charitable trusts or other independent schools.
- Maintain stakeholder confidence among parents, staff, governors, donors or regulators, reducing the risk of sudden withdrawals.
How can McTear Williams & Wood help?
Private schools distress requires practical, experienced intervention. McTear Williams & Wood supports private schools by:
- Establishing the school’s true financial position quickly, including establishing the position with fees paid in advance and the treatment of designated or restricted funds.
- Provide Trustees with an objective view on the financial forecasts and whether the school can continue to trade.
- Advising governors and trustees on their legal and fiduciary responsibilities and risk including Charity Commission expectations.
- Identifying and modelling realistic restructuring scenarios aligned to educational needs and the charitable purpose.
- Supporting sensitive negotiations with fee-paying parents, banks, landlords, pension providers, HMRC and other major creditors and stakeholders.
- Guiding trustees through regulated insolvency procedures, ensuring compliance with both charity and company law.
- If it becomes necessary managing school closures carefully in a structured and controlled way.
The emphasis is always on clarity, control and practical outcomes. For governors and trustees, timing is critical. Waiting for certainty reduces options and acting early preserves them. In the current environment, decisive, informed action is not just advisable, but essential.
Our charity specialists
Jo Watts‘ work for charities began whilst working as a manager at a firm of accountants, where she was asked to assist a partner with a pitch for the audit work of a local charity. After winning that contract, Jo quickly became the firm’s charity accounting and audit specialist.
An opportunity later arose to work with the same charity on secondment for one day a week to bolster the charity’s accounting department during a crisis. This piqued Jo’s interest in working with charities, and so she decided to extend her skills by completing a Diploma in Charity Accounting (DChA) in 2009. This provided Jo with additional knowledge to enable her to make a real difference to organisations in the charity and voluntary sector.
Two years later, Jo was invited to become a trustee for another local charity, a role that she still holds today and attends regular Trustee meetings. Upon qualifying as a licensed insolvency practitioner, Jo has been able to leverage the experience she gained within the charity sector by continuing as a specialist in this sector.
Kelly Goodman specialises in advising charities and not-for-profit organisations facing financial difficulty, working closely with trustees to help them understand their duties and navigate complex financial challenges.
Kelly began focusing on the charity sector in 2022 and has since developed experience advising organisations across a range of charitable sectors. She supports trustees in assessing financial viability and understanding the options available when a charity is experiencing financial distress.
In 2023, Kelly presented at the ICAEW Charities Conference, providing guidance to trustees on their responsibilities when dealing with financial difficulties and the practical steps they can take to protect both their organisations and themselves.
Since then, Kelly has advised numerous charities on both formal and informal insolvency processes, including restructuring and orderly wind-down options where continuing operations is no longer viable. Her approach focuses on providing clear, pragmatic advice to help trustees make informed decisions while ensuring compliance with their legal and fiduciary duties.
Free advice line for distressed charity trustees > 0800 331 7417
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