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Agency rules & VAT

Agency rules & VAT

New client (limited company) runs a private tuition business. Clients approach them for tuition of child, and client then advertises. Various private tutors then apply for the position. When it comes to invoicing the client, this is done by client in full. The private tutor then invoices client at the agreed rate, leaving the client with a cut of the job.

Client is not yet at the VAT threshold but this needs consideration. They have argued (and say they are backed up some advice they had from Tutor Cruncher (the online service where jobs get posted)) that the company turnover for VAT purposes is not the full value of the sales invoice, but the net income after deducting the private tutor's costs. Clearly this dramatically reduces the "turnover" meaning they are further away from the threshold.

I've looked over the HMRC Agency Rules, but these relate only to PAYE/NIC etc and do not mention VAT. My initial instinct is that the turnover is their invoice, with the private tutor invoice coming in as a direct cost, with no impact on the turnover for VAT purposes.

Does anyone have experience in this area? Thanks all.

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25th Feb 2016 08:27

Who is making the supply?

The situation does depend on who is supplying what, and to whom? If the individual tutors are delivering tuition following your client's material and curriculum, it would seem that the tutor is simply a sub-contractor. In contrast, if the company merely acts as an introducer between pupil and tutor, then its income should be the 'commission.' But your written contracts, if any, must be consistent with the arrangement.

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