I am trying to work out the best structure for a dance school. The VAT guidance is hazy and any thoughts would be gratefully accepted!
The school is currently a limited company (for profit) and as I understand, any tuition provided by the founding (and sole) Director would be VAT exempt. There are a couple of other teachers that also work at the school and I'm assuming that the current income from their classes would be VATable at the standard rate.
If the dance school became a not for profit, or specifically a CIC would all provision through the school be VAT exempt? If this was the case, is the director still able to be paid a wage/dividend split and any remaining profit (has to be) re-invested into the business?
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Education education education
Taxation magazine ran an article on vat and education supplies in July 2013
If you, the advisor, want certainty, on vat , then obtain written guidance from HMRC. This may give peace of mind.
The cases cited in the taxation article serve as a reminder that death and taxes are certainties in life though opinions differ markedly on both.
There are two issues
You are actually considering two separate exemptions.
For the limited company, you are talking about the private tuition (of a subject ordinarily taught in a school or university) exemption, which applies where the person giving the tuition is acting independently of an employer.
If the dance school was a partnership, then the tuition provided by a partner would be covered by an exemption, assuming the type of dancing taught qualifies (belly dancing doesn't qualify, for example, and since we have seen yoga and pilates fail on the physical education side, it is probably only a matter of time before zumba gets added to the list).
For a limited company though, tuition by the founding director will not be exempt, because he is, nonetheless, the company's servant.
The not for profit angle involves it being the provision of education by an eligible body. The dance taught needs to constitute education or vocational training (you might, therefore, get away with belly dancing), and the provider needs to be an eligible body (non-profit making for this purpose).
The problem here is that non-profit making bodies are ones that don't make a profit, which will probably go against the objectives of the founding director.
The founding director needs proper advice.
Disclaimer: Advice given on internet forums can be, and often is, wildly inaccurate, and should not be used as a substitute for the advice of a suitably qualified and experienced professional, armed with all the facts, and being paid a suitable fee.
"as I understand, any tuition
"as I understand, any tuition provided by the founding (and sole) Director would be VAT exempt"
Then I'm afraid you don't understand; education provided "by an individual teacher acting independently of an employer" is exempt, a director is not acting independently of an employer. (See VATEDU40500 for the non-hazy guidance on this)
"If the dance school became a not for profit,..., is the director still able to be paid a wage/dividend split" so the company would at the same time as not ditributing profits, distribute profits to its director in the form of a dividend? I'm afraid I don't see how it can distribute profits by not distributing profits. So if it goes that route it's not an eligible body and its supplies are standard rated.
And if you go down the lets just pay the director a high wage, then the CIC asset lock may kick in because as the regulator says "Put simply, if a CIC pays its directors more than they are really worth to it and the community that it serves, it may well be breaching the asset lock. Such a breach may give rise to legal action "
I think you really need to look at getting a VAT specialist on board rather than setting up a structure based on a hazy understanding that will fall apart the first time HMRC look at it.