LLPs and the Private Tuition Exemption
VAT Question
My client is a partnership of a number of individuals providing swimming lessons to children. Currently their tuition is exempt from VAT, but as the business has become more successful, their liability for personal taxes has increased significantly.
Someone has suggested that each of them form a Ltd Co in which each is a sole director and sole shareholder and then form a Limited Liability Partnership (LLP) with the companies as LLP members. This person suggested that in doing so they will retain the private tuition exemption from VAT on their sales whilst giving them scope to reduce the taxes they pay by being within a corporate company.
Is it correct that this restructure would retain the VAT exemption for private tuition?
VAT Answer
Private tuition applies where a sole trader or a partner in a partnership delivers tuition in a subject ordinarily taught in schools or universities, and HMRC’s guidance in their manual VATEDU40200, which discusses the scope of this exemption, confirms that the exemption equally applies to partners in an LLP.
Reference to this guidance alone, therefore, suggests that the private exemption would still apply in your client’s revised structure, but this is actually not the case where the partner in an LLP is a Ltd Co.
This is because of the actual wording of the legislation in the VAT Act, which states that “The supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer”.
In this situation HMRC considers that none of the sole directors of the companies that are members of the LLP are acting independently of the company they are a director of, and so their delivery of the tuition would not meet the legal conditions required for the supply to be exempt from VAT.
This is confirmed in HMRC’s summary of the tribunal case of Marcus Webb Golf Professional in their manual VATEDU40300, with the guidance stating, “Marcus Webb Golf Professional (TC00323) concerned a three-way partnership: a golf professional, his wife, and their related limited company. HMRC accepted that golfing tuition supplied by the golf professional as a partner was exempt (as golf lessons could be included under the definition of ‘a subject ordinarily taught in a school or university’) but said that tuition supplied by him as director of the limited company was standard rated. HMRC also said that tuition supplied by a partnership employee was standard rated.”
Although the partnership in the Marcus Webb case was not an LLP, the same principle must apply where a member of an LLP is a Ltd Co., and so whilst the private tuition VAT exemption does apply in regard to LLPs, it only applies where the member delivering the tuition is themselves an individual or a partner in a partnership and not a director or employee of a member that is a Ltd Co.
Senior VAT Consultant
Tony Pocock
For more information, please contact us at: consultancy@vantagefeeprotect.com
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