Legal entity decisions – VAT horror stories by Neil Warren

Yes - agreed.

As a separate point, the other main situation when supplies of education can be exempt from VAT if provided by a commercial business is if the training or education is vocational and is ultimately funded by the Learning Skills Council. In this situation the exemption also applies to training provided by employees of the business, not just the sole trader or partners as applies with private tuition.

Neil

A very interesting article.

Another consideration that a business has to take into account is insurance -your football coach may want to form a limited company to protect himself from being sued by the parents of a child if that child was to get injured while under his supervision. I am aware of a director of a company offering swimming lessons to children who is reluctant to make the change from a limited company to a partnership for these reasons.

I can think of a well-known franchise operation where, once established, most of the tuition is provided by employees. So on turnover of say £250,000, only £50,000 arises from the proprietor's personal tuition and the balance by employees. Does this mean the £200,000 is not exempt and the business therefore ought to register for VAT?

Why not incorporate the business to get the tax benefits and limited liability of a limited company and act as an agent finding work for the "owners" at say 5% of "owners" invoiced work. Therefore the "owners" work would still be exempt as it is invoiced by him as a sole trader and the company would be below the threshold.

Hello Pete - you have raised a very good example and your conclusion is correct. The exemption only applies to private tuition supplied by a sole trader, or any member of a partnership. It does not apply to instruction delivered by anyone employed by a business, which is taxable income.

Is my understanding correct in that if a sole trader/partnership has £80,000 of turnover but £30,000 is taught by the sole trader/partner and the other £50,000 is taught by staff then £30,000 is exempt and the £50,000 is below the VAT threshold and therefore the sole trader/partnership does not need to register for VAT.