Top tax tip if you want to own a teaching franchise

Understanding VAT could be one of the most valuable lessons you’ll ever learn

As accountants and business advisers, the team at d&t has been working with teaching franchises for years, helping over a thousand franchisees understand the VAT Private Tuition Exemption. With one franchise network of around 200 franchisees, we helped them save an average of £20,000 per year per franchisee.

In a nutshell, if you run a teaching franchise where the subject is ordinarily taught in schools and you’re registered for VAT, it’s possible you don’t need to be, which could be hugely advantageous. It’s surprising how many franchisees and franchisors aren’t aware of this important section of VAT legislation.

Most franchisees and franchisors, like any business turning over more than £85,000 per year, need to be registered for VAT and charge 20 per cent on sales of most goods and services. These VAT registered businesses can reclaim any VAT they pay on business-related goods or services. However, for small tuition organisations, this often doesn’t amount to a significant proportion of the VAT that’s payable.

How the exemption can help

Let’s look at an example to show how the VAT exemption can help. Consider that an ordinary VAT registered business turning over £120,000 gross per year will need to pay HMRC £20,000 per year in VAT. The company might reclaim perhaps £2,000 for business-related services, bringing its total VAT bill for the year to £18,000.

Now consider another business. It’s also turning over £120,000 per year. However, the difference is the company has qualified for the tuition exemption and therefore doesn’t need to be registered for VAT. It, therefore, saves that £18,000 per year.

These examples are based on a business that’s registered for VAT under the standard scheme. There are other schemes available that can help reduce VAT liabilities, such as the flat rate scheme, but the beauty of the exemption is that it could eliminate it completely.

You have to meet certain conditions

It’s not just as simple as knowing about it, though. The exemption may only apply if certain conditions are met or in particular circumstances. This is where it’s important to get good advice from accountants like d&t that are highly experienced in this area.

Generally, VAT exemption depends on who’s providing or buying the services, how they’re presented for sale, the precise nature of the goods or services, whether the necessary evidence is obtained, whether the right records are kept and whether they’re provided with other goods and services.

d&t acts for franchise networks teaching numerous subjects ordinarily taught in schools, including football, rugby, swimming, dance and drama. This saves many franchisees thousands of pounds every year.

Our goal is to help franchisees and franchisors grow their businesses with straight talking advice and by adding value, not numbers. To help franchisees and franchisors find out if they could be eligible for the VAT Private Tuition Exemption, we offer a free introductory call with one of our experienced advisers.

The author

Carl Reader is chairman of business advisory firm d&t.