A company that provides tutoring services is set up as a company limited by guarantee and does not want to charge VAT on the tutoring service claiming it is for education and therefore not for profit. A surplus or profit is being made however and the turnover of the company is above the VAT threshold, which raises a couple of interesting questions:
1. Are the arguments correct for not charging VAT on tutoring services when a profit/surplus is being made?
2. If correct, what suggestions do you have as to the most efficient method of the owner extracting some or all of this surplus from the company limited by guarantee?
Thanks for your assistance.
Replies (3)
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Eligible body definition
The basis of exemption for the company's supplies are that it is supplying education/vocational training and is an "eligible body".
The part of the "eligible body" definition that you seem to be relying on is that it is a "body that is precluded from distributing, and does not distribute, any profits it makes and applies any profits made from supplies within this Group to the continuance or improvement of such supplies".
Just because a company is limited by guarantee, does not mean that it is precluded from distributing its profits.
So the answer to 1 may be "No". If the answer to 1 is "Yes", the answer to 2, necessarily, has to be "It can't do that."
Wrong headed
VAT is pretty well blind to the status of the organisation delivering services. 'Not for profit' also means absolutely nothing for any tax considerations unless there is a regisered charity. But educational services do attract specific conditions you need to check on.
You need to see if the specific service delivered is inside or outside the VAT net.
Extracting profit will probably be restricted to salary and or benefits. Although in theory, companies limited by guarantee can make a distribution (like a dividend) usually the memo & articles prevent this.