Vat on customer's payments?

[Digby69]

I run a driving school with 10 instructors. We sometimes take bulk payments for our instructors from their pupils. For example:
Pupil pays £235 for a block of ten hours, I have to pay Vat on this so I effectively get £195.
Instructor though will want his £235, so when I pay him I lose £40!!!
Is there a way of taking the money in and paying it straight out to the instructor without VAT being paid?
We use sage software if this helps

[pawncob]

I assume the instructors are S/E. Get them to register for VAT, then they take the hit.

[les35]

You might want to review your business model. If an employee earns the entire income for a pupil's courses, you will always be losing money!

[Digby69]

I assume the instructors are S/E. Get them to register for VAT, then they take the hit.

Yes they are S/E. But they will not want to register for VAT as they do not get near the threshold!

You might want to review your business model. If an employee earns the entire income for a pupil's courses, you will always be losing money!

Current business model is franchise based, so that is where the main money comes in. I still want to take bulk payments as it is good for the customers and the instructors, BUT I can't keep taking the hit.

Any other ideas?

[les35]

Sit down with your Accountant with a calculator for an hour.

[Digby69]

Sit down with your Accountant with a calculator for an hour.

I've done that, and they say it has to be taxed. However I can not see big driving schools like BSM or AA paying £1000s of tax on money they take in for their instructors if it does not put profit into their business.

Can I do anything about nominee accounts similar to the financial sector? These are zero rated!

[les35]

Back to my previous point. If you take £235 from a customer, and pass the same amount to £235 to the instructor, having paid VAT output tax, you will always lose money. Hence my comment about the business model.
I do not know whether BSM or AA employee instructors. I understand Red uses self-employed instructors, but I haven't seen the contracts.
But your Accountant knows your business better than I do, so should be able to advise you of your options.


(I do not think nominee accounts in the financial sector are zero rated, but that is a seperate matter!)

[Digby69]

Thanks for your help.

[bd6759]

If you pass the the full amount of the customer's payment to the instructor, where is your profit?

[Lavenderu2306]

Why should you pay VAT on the amount which you ar just passing to instructors?