VAT exempt supplies - does the client need to reg?

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Hi, 

A client (sole trader) has exceeded the VAT reg threshold of £85k, with turnover of c.£100k. However, 75% of this total is VAT exempt services (private dance and gym tuition to children), therefore not a "taxable supply" for VAT purposes. There are also zero-rated supplies, but this makes up the minority of the sales. Client also needs to submit Self-Assessment Tax Return and asked whether HMRC may investigate on the basis he is not VAT reg with a turnover over £85k, albeit majority exempt supplies. 

Does the client need to submit VAT1 to get an exemption? The VAT1 form box for exemption refers to "zero-rated supplies" which is different to Exempt supplies so I assume a VAT1 is not needed. Can anyone confirm the right approach? Thank you.

Replies (8)

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By rmillaree
03rd Dec 2023 10:38

Does the client need to submit VAT1 to get an exemption?

for vat registration threshold calcs exempt sales are ignored so client has no need to do anything - they arent over the threshold so are in exactly the same position as someone with 30k turnover no exemption application needed.

word of warning here vat rules on dance and gym classes are not simple and always clear cut as being exempt - so your clients wants to be 100% sure sales are exempt. If they have the slightest doubt they should get conrfimation direct from vat office that that is the case for their exact circumstances.

https://www.accountingweb.co.uk/tax/personal-tax/vat-hmrc-wins-in-dance-...

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Replying to rmillaree:
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By rt1990
03rd Dec 2023 10:45

Thank you for your response.

Regarding the rules on dance and gym classes, after seeing various HMRC cases against taxpayers, they have written to the VAT office seeking confirmation. However, HMRC's response was "please complete a VAT1 form to say you want an exemption" - given a VAT1 is not required, a bit unsure on next steps here, and nothing on gov.uk to clarify.

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Replying to rt1990:
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By rmillaree
03rd Dec 2023 13:30

"Regarding the rules on dance and gym classes, after seeing various HMRC cases against taxpayers, they have written to the VAT office seeking confirmation."

I Thought you said these were exempt sales - it sounds like they may be anything but exempt sales ?

Note vat office will normally rubber stamp vat treatment if you lay out full facts and its reasonably obvious that you have laid out why exemption applies. If you write them sketchy letter not clearly laying out the case for sales being exempt - i would expect hmrc top write back with gibberish.

What is you reason for believing these sales are exempt ? - ideally link to guidance confiming the facts in vat guide or procedrual manual

Note if you are not specialist or suitablly clued up in this area you should be pointing client in the direction of specialist imho.

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Replying to rmillaree:
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By rt1990
03rd Dec 2023 13:45

The letter was specific and referred to legislation and applied to the business so was not vague.

Having referred to “VAT Notice 701/30” and “VATEDU40100 - Group 6 Item 2 Private tuition and tutorial colleges” - private tuition may qualify for VAT exemption under Item 2 of Group 6 of Schedule 9 of the VAT Act 1994 which states that the supply of private tuition, is exempt from VAT if:

a) It is in a subject ordinarily taught in a school or university; and
b) Delivered by an individual teacher acting independently of an employer.

They don't teach Ceroc, as an example of a previous HMRC case. Private tuition is on dances like ballet and tap which should meet the exemption criteria.

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Replying to rt1990:
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By rmillaree
03rd Dec 2023 13:58

please complete a VAT1 form to say you want an exemption" - given a VAT1 is not required, a bit unsure on next steps here, and nothing on gov.uk to clarify.

if you are sure/client are sure its exempt then imho the vat1 is n/a. I would recommend writing back explaining the logic for exemption and that as a such you simply want their confirmation rather than ignoring the point and defaulting to vat1 being necessary.

vat office sometimes dont answer the question , that appears to be the case here - if that is then case you would need to push them further and or perhaps seek expert advise if you are not 100% certain in your stance.

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Replying to rmillaree:
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By rt1990
03rd Dec 2023 14:03

Agreed. Appreciate your time and views, thank you.

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VAT
By Jason Croke
03rd Dec 2023 17:33

If you are happy that most sales fall under the exemption and the zero rated sales are less than £85k per 12mth rolling period, then there is no need to register for VAT as you appear well below the threshold, and as per the first post here.

Yes, HMRC might see clients turnover is £100k on self assessment and nothing you can do about that except prepare for a call from HMRC who will ask but once they see sales are mostly exempt they'll be happy.

Just make sure the sole trader is making exempt supplies as lee the guidance for private tuition.

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Replying to Jason Croke:
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By rt1990
18th Dec 2023 08:31

Thank you Jason for your reply.

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