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Education Agency (Middleman) taxable turnover.

Education agency, receives foreign client fees for booking residential courses plus agent markup

Building an education agency that uses a simplified agency model such that each foreign client makes a single payment to the agency and the agency then passes over 90% of all funds received to cover transportation, insurance, accommodation and educational course fees.

Do the educational course fees form part of taxable turnover or not?

Example: Shool charges £2,000, agency charges client £2,500 (to cover: £2,000 course fee, £80 airport transfers, £50 insurance, £200 visa fee, £70 local weekend trips, Agency markup, aka profit £100)

In thexample above, if the entire fee is taxable turnover then VAT threshold is hit on 35th student.and agency makes £3,500 (less expenses).  However, if the £2,000 course fee is zero rated then 170 students can be supported before hitting the VAT threshold for a profit of £17,000 (lless expenses)

 

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By SXGuy
12th Jan 2019 20:00

What is your reason for comparing a) what the agency charges and b) whether the course fees paid by the school are exempt from vat or not? I don't get the correlation.

In regards to your taxable turnover, are you providing services or acting in principle? If your not providing the course, meals, transport etc, but charging a fee then I'd guess your turnover "could" be just the fee part only.

But without knowing more I wouldn't like to say for sure.

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12th Jan 2019 21:19

I would be surprised if the middleman's supplies were exempt. But more details as to contractual position will help with liability and place of supply.

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By Marcvw
13th Jan 2019 21:03

Thank you for your replies. I will try and clarify.

Currently many education agents are paid a commission by the school they place students at (agent places student, student pays the school, school pays commission to the agent). However, there are a large number of students who want a 'one stop shop' and that is what we are trying to set up, thus they want to make a single payment to cover everything required for their course: visas, insurance, transportation, accommodation & school fees.

School fees are zero rated for VAT. However, if the student pays us an amount to cover the school fees, plus the other services we are providing – does the amount that counts as school fees, still get treated as zero rated for VAT?

We fully accept that the other services are supplied in the UK and thus count toward total taxable turnover (we sort out the airport transfers, visa, insurance, accommodation, day trips, etc). The one thing we can’t work out is if the portion paid to us for the school fees is also taxable turnover. Our initial thought was that is isn’t, but HMRC have been no help with two answers saying it is not taxable turnover & one saying it is as we are not a registered school or university.

Students will be from Europe & Asia.

I looked up acting in principle and I think there is a case to be made for acting in principle and providing services since we are responsible for the clients’ money and paying for their school (which I believe is the acting in principle part - but could be wrong), we also provide services in that we complete their visa applications, their insurance while in the UK, their travel to & from the airport, their accommodation (which I believe is Providing Services), and also day trips.

If Providing Services or Acting in Principle alters the taxable turnover position, we can word our contracts to make this point clear. It is only the school fees that we are trying to discount as I don't believe any of the other 'services' we provide are zero rated for VAT (although I haven't fully dug into any of those yet).

If a student in Italy or Malaysia, pays a school in the UK £5,000, the UK school fee is zero rated for tax, but if the student pays me £5,000 and I then pay the school, is the amount paid to me still zero rated for tax for my company? I am not trying to evade the tax here but need to know as it has huge implications on the business model. In the first example, the school would pay me commission & that is my taxable turnover, in the second example, if the full amount is taxable turnover then I will need to register for VAT and charge VAT on an amount that may make the business model unsustainable.

Any help greatly appreciated

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By SXGuy
to Marcvw
13th Jan 2019 21:21

The reason I mentioned acting in principle was based around the school fees part.

I think hmrc have confused you by two answers to two different scenarios.

Your question is whether school fees are vat exempt or not, but you also mention that you act as an agent and pass these fees over to a school, your not "the" school the student is paying.

So my point is, if that is treated as you acting in principle then it does not make up part of your turn over, and therefore matters not whether it's exempt from vat. Your simply passing the cost on.

I think hmrc were correct when they said its only exempt for a registered school, but I believe that was based on the assumption that the fee formed part of your turnover.

BTW this is only my opinion and I don't really deal in this area in my day to day work, so if someone else more expierenced differs I'd be interested to hear it.

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to Marcvw
14th Jan 2019 09:52

Marcvw wrote:

School fees are zero rated for VAT.

Hmm...

I thought they were exempt (not zero rated) when supplied by an eligible body. Are you an eligible body?

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By Marcvw
to WhichTyler
14th Jan 2019 11:05

My apologies, for using the wrong terminology. I think the eligible body may be the issue. I have been digging but cannot find if education agents are counted as eligible bodies or not, and that is why I really can't work out if the course fees are paid to our company (an education agent) are those fees still exempt, or are they only exempt when paid direct to a school or university?

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to Marcvw
14th Jan 2019 18:04

See VAT notice 701/30 para 4.1 if it helps, but I echo what the correspondent below said about getting proper advice

An eligible body is:

a school, university, sixth form college, tertiary college or further education college or other centrally funded higher or further education institution (defined as such under the Education Acts)
the governing body of one of these institutions:
LA
government department or executive agency
non-profit making body that carries out duties of an essentially public nature similar to those carried out by a LA or government department
health authority
non-profit making organisation that meets certain conditions
commercial provider of tuition in EFL, in which case special rules will apply (see section 9)

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14th Jan 2019 07:32

I would have said it makes a difference whether your sales invoice separates out the course fees, eg “course £2k (0%), transport, visa, insurance, accommodation & admin £500 (20%)”.

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14th Jan 2019 11:55

I'd go for the "Get and accountant and pay for some bespoke advice" response. I've got language school clients and you need to get the structure just right to satisfy the VAT exemptions, agency rules are complicated too if that applies. If you get this wrong your tax bill could be significantly higher than the cost of advice.

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