Strange business to sole trader relationship

A yoga studio treating its instructors strangely.

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My client is a sole trader. She teaches yoga/Pilates etc and believed that she was billing the studios for whom she does work on a provision of services basis, with an hourly rate. So far so simple.

However, I've discovered that one studio invoices her. She didn't really understand these 'reverse invoices' so I've taken a look. It seems that they are claiming that all fees paid by clients are earned by her as teacher and that she is paying a huge sum to rent the room. They then manipulate the room fee to achieve their agreed rate of £30 per class. This means that she will earn the same each month for the number of classes taught, but the room rate fluctuates wildly in line with the number of clients.

I think they are doing this to try and demonstrate that they are not employing their teachers, although I'm not experienced enough to know if this is offering them other tax benefits. I'm not too worried about that (although I am not convinced what they are up to is 100% above board).

My concern is that, my client is no longer in a relationship with them in which she is providing services, instead she is effectively hiring a room (according to the paperwork) and is not invoicing for services, but instead is being invoiced for room hire and is receiving a residual payment for the monies apparently collected in her behalf. My concern is that this affects things like her return and the income and expenditure she needs to show on her UC application each month (her income is well down in lockdown, so she has a bit of benefit money coming in too) was these invoices effectively hugely inflate both her income and expenses well above the level she thought, because her perception was simply that she was earning an hourly rate.

Is this legal? Does she need to try and invoice the business on her terms rather than submit to their accountancy practice, or does she just accept it and change the figures she's resorting to HMRC to be in line with the way she's being invoiced by the company she's working for.

(If this was ever looked at, I think it would be exposed as they clearly own the client relationships and effectively employ the teachers, but like I say, that's not my concern, I just want to get these accounts correct for my client!)

When it all started happening the studio told them that nothing was changing, they just were no longer doing their own invoices, but this situation didn't seem right to me.

Replies (52)

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Replying to Tax Dragon:
A Putey FACA
By Arthur Putey
04th Feb 2021 16:02

Would it work as a centre of excellence for cat herding? Failing that an online clairvoyants' hangout.

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By more rain
05th Feb 2021 12:59

My wife is a self-employed yoga and Pilates teacher for various studios around London and I have never seen invoicing this way in over 10 years.

Yoga studios all require their teachers to invoice differently, some you raise the invoice on your pro-forma, others they have a template and you put the hours worked and total up the monthly pay.

Part of me think's this is to get around a VAT registration or something else, in London us mugs pay £25 per class and, some studios can hold 40 people a time. The teacher gets £30 and say £1 per person.

Yoga and Pilates teachers have to have their own PII before they can work for a studio. I know my wife used her employers when she was training but at that point she was on the payroll. I doubt it is an insurance issue.

Using your clients invoicing method at London studio;
30 people paying £25 per class = £750
Teaches 20 classes per week at £750 per class = £15,000
Looking at (over at 48 weeks) turnover of £720,000 a year.
Profit showing £28,800 (£30* 20 classes a week *48 week)

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