After much correspondance with HMRC, software company TutorCruncher have confirmed HMRC's official ruling on how tutoring companies should pay VAT.
Until now, the ruling has been unclear on whether tutoring companies should pay VAT only on their commission or on the whole amount they charge to the client.
HMRC have confirmed that as long as a company is acting as an agent and not as a service provider, i.e. employing tutors and offering services other than introductions, then they only have to pay VAT on their commission.
TutorCruncher outline the following steps that tutoring companies can take to establish themselves as agents:
- Ensure that tutors are registered as self employed
- Make sure that tutors contract directly with the client
- Ensure that any contracts clearly state your limitations as an introductory service
- Invoice clients on behalf of the tutors (TutorCruncher software offers this facility)
- Invoice tutors for a commission (plus VAT depending on your turn over) rather than invoicing the clients for tuition
- Make it clear that you don't supply tutoring services i.e. you don’t supply materials or arrange lesson times
TutorCruncher said in their latest news post that HMRC will not give a general ruling on the matter due to the variances in how tutoring companies operate.
The software company suggest that as an agency, tutoring companies could save roughly 12% of their revenue, which for most businesses is their entire profit margin.
TutorCruncher has a specially designed invoicing system that enables tutoring agencies to calculate their own VAT.
Other useful resources - How to Pay Tax as a Private Tutor on The Tutor Website
What do you make of HMRC's ruling? Does it clarify any questions you had about paying VAT as a tutoring agency? Let us know your thoughts.