Neil Warren was surprised that the first-tier tribunal decided that Anna Cook’s Ceroc dancing classes qualified for the VAT exemption.
There are three conditions to meet for supplies of private tuition to be exempt from VAT:
The tuition must be given by either a sole trader or member of a partnership – any tuition given by an employee or subcontractor does not qualify. Any tuition given through a limited company is also blocked from an exemption, even if the tutor is the sole director and 100% shareholder of the company.
The tuition must be given privately – although there is no problem with group classes.
The tuition must be in a “subject ordinarily taught in a school or university” (VATA1994, Sch 9, Group 6, Item 2).
Ceroc is said to derive from the French "C'est le roc" (“It's rock”), used to describe rock n' roll dancing in France. This style of dance is also referred to as modern jive. The Ceroc brand operates as a franchise in the UK and the Ceroc classes typically follow a similar format.
Anna Cook (TC07149) hosted Ceroc classes at 11 different venues in Norfolk, which were described as a “fun night out and a way of meeting members of the opposite sex”; there was a licensed bar and disc jockeys employed to play the music and each attendee paid between £5 and £8 per session. The priority was to promote “entertainment, socialising and dance tuition”.
Stand out performance
When I read the description of the dance classes, my conclusion was the activity was recreational and not educational, and therefore there was no VAT exemption!
My thinking was informed by a string of FTT decisions in recent years that have denied the VAT exemption for, among other things, belly dancing (Cheruvier TC3148), pilates (Hocking TC4130) and yoga classes (Tranter TC4071) on the basis that these subjects were not ordinarily taught in a school or university. But Judge Gillett produced a shock decision in favour of Cook.
Judge Gillett’s original line of approach was that the Ceroc moves “should be considered as being the same as teaching dance in a school or university”. He also decided that “the advertising of the event as fun and entertaining does not detract from the fact that the ultimate purpose was to teach dance.”
He also concluded that the classes were a “serious educational purpose and not, therefore, a purely recreational activity.” The appeal was allowed, meaning that Cook did not need to be VAT registered between October 2010 and 16 September 2012.
There is a fine distinction between an educational lesson and a recreational activity in many situations. This case would be a good one to quote if HMRC challenges the VAT liability of any classes given by your clients, although as it is only an FTT decision it does not form a precedent that other judges are required to follow.
In general terms, there is no problem with the VAT exemption for sporting classes such as football coaching or tennis lessons, and general teaching in the arts; eg piano lessons or singing classes. However, my impression is that the Ceroc nights stretched the boundaries a bit too much and seemed more focused on fun rather than education.
My favourite tale is about the sole trader football coach (ex-professional player) who earned about £60,000 a year from his coaching work and also made about £50,000 of merchandise sales, eg kits and boots, but was not VAT registered. His accountant decided to incorporate his business to take advantage of the zero rate of corporation tax that was on offer at the time and totally forgot about VAT.
The end result was that the company was trading over the VAT registration threshold because the £60,000 of exempt coaching fees he made as a sole trader became standard rated as a limited company. A classic example of how dangerous it can be swimming in the shark-infested waters of the nation’s favourite tax.
About Neil Warren
Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.