If a sole proprietor gives private tuition (vat exempt on fee income) and has an employee who supplies teaching for the proprietor I think this income will be vatable if the sole proprietor reaches the vat limit. If so how would you split the income ?
Would it be on fees earned by proprietor/employee or would there be another way to check registration limit?
Charles Grey
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The supplies made would be, as Mark stated, exempt where the tuition is provided by the tutor on his own account and potentially VATable where provided by the employee, but it will not create a partial exemption situation unless the VAT attributable to the exempt supplies exceeds the deminimis limit. It may be more efficient for the employee to provide the tuition themselves, so exempting the lot with a commission payable to the former employer if this arrangement will stand inspection from the perspective of employment law, IT and NIC of course.
Partly exempt
The business would be partly exempt for purposes of VAT. This means that only the taxable proportion counts towards the VAT registration threshold. If the value of the services provided by the employee(s) exceeds this threshold, then he will have to register for VAT, and apply a method of partial exemption. However, if he ensures that the value of services provided by his employee(s) does not exceed the threshold, then he will not have to register at all. However, take care, any split of income must be fully justifiable on the facts - the simplest way would probably be based on the income received from the individual clients taught by the proprietor and by his employee(s).
Mark Buffery