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Where Taxpayers and Advisers Meet

Drama Schools - how to calculate turnover

Stutrumpet
Posts: 2
Joined: Wed Feb 20, 2019 7:46 pm

Drama Schools - how to calculate turnover

Postby Stutrumpet » Wed Feb 20, 2019 8:02 pm

Hi all,

I have a friend (sole proprietor) who runs a drama school and is dangerously close to the current VAT threshold. I have searched the 'Net' and it appears that any income generated by my friend's private teaching may be exempt as it can be clearly shown to be a subject taught normally in many schools. This part is easy to prove. However, there are some assistants and I understand that any income generated for the 'business' from their teaching would be standard rated.

My question is whether in calculating the turnover it is necessary to include BOTH my friend's private teaching income plus that of the assistants. I have studied Education and vocational training (VAT Notice 701/30) and this does seem to suggest that one only calculates the income from assistants to see whether to be VAT registered or not. The problem is that when completing the next SA return he will show a turnover exceeding £85000 and also indicate that he is not VAT registered.

Am I correct that there is no necessity to register? If so, will this automatically get flagged up for a VAT enquiry? What can he do in advance to mitigate unnecessary questions?

robbob
Posts: 2827
Joined: Wed Aug 06, 2008 4:01 pm

Re: Drama Schools - how to calculate turnover

Postby robbob » Thu Feb 21, 2019 10:12 am

Tricky one to advise on this - IF what is being taught comes within the exemption you mention (presumably section 6 private tuition?) then all well and good and i would say the following.
I am also presuming this whole class is done by the one person with "no helpers"

as you say the higher turnover could flag up a vat enquiry - it would be silly if it didn't at least raise a flag.

(1) Put relevant notes on the self assessment return to indicate that turnover includes x amount exempt income therefore turnover below vat registration threshold.

(2) You can write to vat office to get written clarification / support for the view that the relevant turnover is exempt from vat if you have any doubts - you should put full details in with regard to exact "nature of services provided" and ask the direct specific question ideally with reference to the relevant section in the vat manual. If there is any other evidence you can find attach that
too.

However i personally don't know enough on the finer points of section 6 to advise in this regard as to whether exemption applies which is the main question - i wouldn't presume it isn't ok but i wouldn't presume with 99.99% certainty the other way either. unfortunately. time for a cop out with posting of link :( - are these classes educational or recreational? would be one thing lingering in my mind. Hopefully someone more versed in this area than me will offer some opinion in this regard.

If in doubt written confirmation from vat office as recommended above would be a good starting point.
https://www.constablevat.com/cvc-blog-tuition-providers-supplies-vat-exempt/

Stutrumpet
Posts: 2
Joined: Wed Feb 20, 2019 7:46 pm

Re: Drama Schools - how to calculate turnover

Postby Stutrumpet » Thu Feb 21, 2019 6:28 pm

Many thanks Robbob

I am reasonably confident that exemption applies to this 'subject'. I think Section 6 is meant to catch high earning teachers such flying lessons. You do seem to support these views though:
a) He doesn't have to include the 'exempt' income in calculating turnover
b) He WILL need to put an explanation on his SA return as to why he isn't VAT registered AND have evidence to back this up.

So, your advice to contact them in advance seems best way forward.

Thanks again

Stu

kingmaker
Posts: 8
Joined: Tue Feb 11, 2014 3:14 am

Re: Drama Schools - how to calculate turnover

Postby kingmaker » Sat Mar 02, 2019 12:29 pm

The teaching by the sole trader falls within the educational exemption under Schedule 9, Group 6, Item 2:
“The supply of private tuition, in a subject ordinarily taught in school or university,by an individual teacher acting independently of an employer”.

The term “individual teacher acting independently of an employer” restricts Item 2 to sole traders and partnerships.

Previously the courts have held that the exemption is for the billing of the partners 'time (or sole trader) but it does not extend to the billing of employees’ time.

Hence no requirement to register for VAT if the total taxable turnover is below the threshold (excluding the teacher's).

The teacher may consider to make the assistants partners (with or without profits share) and when the partnership raises an invoice for their teaching that ALL fees should fall within the educational exemption.

If he decides to form a company, he may save on the income tax/corporate tax but for companies to get the VAT educational exemption they would need to fall within Item 1 of Group 6 and qualify as an eligible body e.g. non-profit making. The teacher/assistants will not fall within this category if they formed a corporate.

Not clear on your point regarding "the next return exceeding the threshold". If the taxable turnover is above the threshold temporarily, get an exception. You can apply for a registration 'exception' if your taxable turnover goes over the threshold temporarily. Write to HMRC with evidence showing why you believe your VAT taxable turnover will not go over the de-registration threshold of £83,000 in the next 12 months.

Hope this helps
I'm looking for VAT advisory work & subcontracting work from accountants


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