BYL v Chancellor of the Exchequer [2026] EWCA Civ 170

Charedi Jewish and Evangelical Christian school communities challenged the imposition of VAT on private school fees under the Finance Act 2025, claiming it breached Convention rights. The Court of Appeal dismissed the appeals, holding the measure was objectively justified and proportionate.

Facts

Following a 2024 Labour Party manifesto commitment, the Finance Act 2025 (sections 47-49) amended the Value Added Tax Act 1994 to remove the VAT exemption previously enjoyed by private schools under Group 6 of Schedule 9. VAT at the standard rate became chargeable on private school fees from 1 January 2025.

Two groups of claimants challenged the measure. The Group One Claimants (BYL and BAU) were members of the Charedi Orthodox Jewish community, whose children attended low-cost private Charedi schools. The Divisional Court found Charedi families typically have a strong religious and cultural preference for Charedi education, almost no state alternatives offering such education exist, and the community is socio-economically deprived.

The Group Two Claimants comprised four Evangelical Christian schools, together with parents and children associated with them. They contended state schooling was religiously unacceptable because their faith required education to be ‘infused’ with Christian principles.

Both groups argued that the imposition of VAT would render their schools unaffordable, potentially causing some to close, thereby depriving children of specialist religious education unavailable in the state sector.

Issues

The appeals raised the following principal issues:

• Whether the measure breached Article 14 read with A2P1 by failing to exempt low-cost faith schools (Thlimmenos and indirect discrimination).
• Whether the measure interfered with A1P1 rights of schools (goodwill) or parents (possessions).
• Whether the measure breached A2P1, including whether it impaired the ‘very essence’ of the right to education, and whether the second sentence of A2P1 (respect for parents’ religious and philosophical convictions) was violated.
• Whether international human rights instruments and an alleged European consensus against taxing education narrowed the state’s margin of appreciation.
• Whether the measure was objectively justified and proportionate under the Bank Mellat four-stage test.

Arguments

Claimants’ arguments

The Group One Claimants contended that the Divisional Court wrongly attributed ‘considerable weight’ to the Government’s Pluralism Policy (that non-denominational state schools can cater for all faiths), which was irrelevant because Charedi families had no religiously acceptable state alternative. They submitted the Government had failed to justify Thlimmenos discrimination by not treating Charedi schools differently.

The Group Two Claimants argued that: (i) the schools’ goodwill (as possessions under A1P1) was threatened; (ii) the measure failed the public interest threshold given the VAT Directive’s mandatory exemption for education; (iii) A2P1 must be interpreted in light of international instruments including the Universal Declaration of Human Rights, the Convention against Discrimination in Education, the ICESCR, and the UNCRC; (iv) the measure impaired the very essence of A2P1; (v) a European consensus against taxing education narrowed the margin of appreciation; and (vi) the measure was discriminatory and disproportionate.

Government’s arguments

The Government Parties relied on evidence from Ms Scarlett Graham (HMT), Ms Katharine Peters (HMRC) and Ms Susan Whitehouse (DfE) explaining the rejection of a low-cost carve-out. A threshold exemption would: create unfairness between schools just above and below the line; distort the market and incentivise fee suppression; create tax avoidance opportunities (notional donations, value shifting) that would be difficult for HMRC to police; increase administrative burdens; reduce revenue by around £30 million per annum; and conflict with policy that state education is suitable for children of all faiths.

Judgment

Approach to proportionality

Applying Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs [2025] UKSC 30, the Court of Appeal held these appeals fell within the paradigm requiring a fresh proportionality assessment, as they involved the first appellate consideration of a new legislative regime of general application with significant social importance.

A1P1 (Group Two Claimants)

The Court upheld the Divisional Court’s finding that A1P1 was not engaged. Relying on Breyer Group v Department for Energy and Climate Change [2015] EWCA Civ 408 and R (Countryside Alliance) v Attorney General [2007] UKHL 52, the Court distinguished marketable goodwill from future income. The schools’ complaint concerned a loss of anticipated future income rather than damage to existing goodwill; parents were not contractually obliged to continue enrolment. The parents were not obliged to send their children to private schools and therefore could not complain of interference with possessions.

A2P1 (first and second sentences)

The Court endorsed Lord Bingham’s summary in A v Head Teacher and Governors of the Lord Grey School [2006] UKHL 14, noting that

there is no right to education of a particular kind or quality, other than that prevailing in the state

. The first sentence guarantees a right of effective access to existing educational institutions; it does not oblige the state to subsidise private schools. A state measure making private education more expensive, but not rendering it practically impossible to operate, does not impair the very essence of the right, particularly where state schooling and home schooling remain available. Campbell and Cosans v United Kingdom (1982) was distinguished because no state school here would conflict with the parents’ convictions in a way engaging the second sentence.

International instruments and European consensus

Applying R (SC) v Secretary of State for Work and Pensions [2021] UKSC 26, the Court held that unincorporated international instruments do not form part of UK law and do not expand A2P1. The VAT Directive was primarily a harmonisation measure with an economic rationale unrelated to Convention human rights standards, so no relevant European consensus narrowed the margin of appreciation.

Article 14 discrimination and justification

The Court accepted the case involved potential Thlimmenos and indirect discrimination, but not direct discrimination. Applying the four-stage Bank Mellat test, the Court found the measure had a sufficiently important objective (revenue-raising to support state education); was rationally connected to that objective; had no less intrusive alternative; and struck a fair balance.

The Court placed significant weight on the practical considerations in Ms Graham’s evidence: the £30 million revenue loss was substantial (equivalent to the employment of many teachers); administrative burdens and avoidance risks were cogent; and parents retained the option of home schooling. The Court observed that metaphors such as ‘margin’ and ‘intensity of review’ were tools rather than legal tests, the operative test being the four-stage Bank Mellat analysis.

Other grounds

The Court rejected the argument that private and state-funded schools were relevantly similar for Article 14 purposes, noting private schools may charge fees whereas state schools may not. The discriminatory boarding fees argument was rejected because none of the claimant schools operated boarding facilities. The Court found the absence of a transitional period was justified, since delaying implementation would have cost over £500 million.

Implications

The decision confirms that the imposition of VAT on private school fees under the Finance Act 2025 is compatible with Articles 14, A1P1 and A2P1 of the Convention, even where it has disproportionately prejudicial effects on religious minorities with limited access to faith-based state alternatives.

The judgment reinforces several points of wider importance. First, it affirms the Shvidler framework: appellate courts will conduct a fresh proportionality assessment in cases concerning new legislative regimes of general application with major social significance. Secondly, it reiterates the narrow scope of ‘possessions’ under A1P1, excluding mere expectations of future income even where business viability may be threatened. Thirdly, it confirms that A2P1 confers no right to state-subsidised education of a particular religious character, provided state or home-schooling alternatives exist. Fourthly, it clarifies that the VAT Directive, as a harmonisation instrument with economic rationale, does not generate a human rights consensus narrowing the margin of appreciation.

The decision is significant for practitioners advising faith communities, independent schools and government on the interplay between fiscal policy and Convention rights. It illustrates that practical considerations (administrative workability, avoidance risk, revenue implications) can carry substantial weight in proportionality analysis, particularly for general measures of economic and social strategy. However, the Court’s reasoning depends on the continued availability of state schooling and home education as alternatives; the analysis might differ where no such alternatives exist. The judgment does not foreclose future challenges based on different factual matrices, particularly where evidence of school closures and demonstrable denial of effective access to education might be stronger.

Verdict: The appeals were dismissed. The Court of Appeal held that the imposition of VAT on private school fees under sections 47-49 of the Finance Act 2025 was compatible with Articles 14, A1P1 and A2P1 of the European Convention on Human Rights, as the measure was objectively justified and proportionate.

Source: BYL v Chancellor of the Exchequer [2026] EWCA Civ 170