A quick lesson on Very Annoying Tax aka “VAT” and Tuition
As things have changed over the last 18 to 24 months, more and more musicians, singers and actors have turned to teaching online as live performances were non-existent.
Those that have done it really well (yay!) may have found that they are approaching the VAT threshold for the rolling 12 month period (boo!), especially when normal business starts to resume.
Now, this has actually sent many people into a bit of a head spin.
Suddenly they’ve got to register for VAT and charge 20% more than other people in their field!
Just when they were doing so well. It feels like you can’t win!
Now that is “VAT”!
People are even trying to concoct different ways around this VAT registration to keep their costs down and the need for reporting to HMRC quarterly.
Well, concoct no more, there’s absolutely no need to panic.
In fact, here’s some good news…
In general, fees from private tuition are EXEMPT from VAT and do not count towards the income threshold for VAT turnover.
Therefore, VAT does not have to be charged on these fees.
Hold your horses there teacher…
It is only exempt if certain conditions are met:
- Lessons are given by a sole trader or self-employed person or a member of a partnership.
- Private doesn’t actually mean one to one only. It can be one to many as sometimes tuition can only really work in a class.
- The subject must ordinarily be taught in a school or university.
Now you might assume that if it’s ordinary taught in school and university, then there would be an age limit.
Even if tuition is given to a 50 year old, that person is still learning a subject taught in schools or university and therefore remains exempt from VAT!
Yay again! *begins small hopeful dance before reading on with trepidation*
Wait a minute, here comes the science – the REALLY boring bit.
Now, a self-employed person giving tuition cannot outsource that to another self-employed person and treat it as exempt income if they are VAT registered.
It has to be delivered by the self-employed person that is doing the billing to the clients. So be very careful. There’s no depping out tuition and getting away with it if you have income above the VAT threshold.
A bit of a nightmare keeping accurate records for that too!
So, you MIGHT decide, given you are doing other things as well, that you want to set up a limited company and put all the business through a limited company.
However, that’s where the situation gets a bit trickier so steady on there old bean and read on…
If you deliver tuition through a limited company and then start to break the VAT threshold, your lesson fees count towards the VAT threshold.
So you would need to charge VAT on them and may become, in effect, 20% more expensive.
“So what to do Lou?”
You could stick as a sole trader to deliver the tuition and put your other type of income, like performing income, into the limited company.
That’s absolutely fine.
However, if you do split your business legitimately between teaching and performing, then you may not hit the VAT threshold in total because your limited company has one threshold and you as a person have another threshold.
In summary, providing you are self-employed, delivering the teaching yourself and the subject is normally taught at schools or university, there is no concern about having to be VAT registered for tuition.