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PPL test fee and VAT

Old 10th Mar 2016, 14:57
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PPL test fee and VAT

One of the schools I examine at charges the students their test fee directly, subtracts VAT and passes the rest on to me.

When I charge people at other schools cash in hand, should I be declaring VAT on this? I am not VAT registered, and have no idea about this stuff. I've always just done self assessment for my instructing income.
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Old 10th Mar 2016, 15:03
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If you are not VAT registered, it would be illegal to declare VAT on bills to your customers. As this can be a complicated issue and no way a forum on the internet can tell you what makes sense to do, please seek tax advice from your tax advisor.
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Old 10th Mar 2016, 16:44
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I'm fairly sure (but please don't fire 8mm canon at me if I'm wrong) that the test fee is recommended to be a matter between the Examiner and the student direct. It's certainly my experience that every Examiner I've known does it this way, invariably unregistered for VAT. I've only ever heard of one school charging VAT on a test fee for PPL but I think their Examiner was employed by them and on a salary.
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Old 13th Mar 2016, 10:18
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One of the schools I examine at charges the students their test fee directly, subtracts VAT and passes the rest on to me.
You should charge the test fee directly to the student. If the school want to administer it they should charge VAT on the fee, not remove it from the fee.
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Old 13th Mar 2016, 20:05
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Flight Tests are VAT Exempt. It is not instruction it is a test and therefore no VAT should be charged.
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Old 13th Mar 2016, 21:21
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We asked our accountants about this a while ago and as I recall, what the VAT person said was this. If a VAT registered entity (a flying school), is acting only to collect the fee for someone who isn't VAT registered, (such as a self-employed FI/FE) and they don't add any further charge, or take a cut, but pass on the whole amount, then it can be processed as a zero VAT transaction.
I can't back that up with an extract from a HMRC publication or anything, just what we were told.
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Old 14th Mar 2016, 12:46
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Tests and Exams do not attract VAT. It does not matter if you are VAT registered or not.
Eye tests - VAT Exempt
Driving Test - VAT Exempt
MOT Test - VAT Exempt
Flying Test - VAT Exempt
Any Exam - VAT Exempt

No service has been provided so no VAT charged.
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Old 14th Mar 2016, 14:06
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Originally Posted by Weathergirly View Post
Tests and Exams do not attract VAT. It does not matter if you are VAT registered or not.
Eye tests - VAT Exempt
Driving Test - VAT Exempt
MOT Test - VAT Exempt
Flying Test - VAT Exempt
Any Exam - VAT Exempt

No service has been provided so no VAT charged.
Weathergirly's replies (#5 and #7) don't quite hit the spot.

And there is no blanket VAT exemption for "tests and exams".

And (excuse the nerdiness) it is incorrect to say that no service has been provided.

In VATspeak, the provision of a flight test in return for a fee is a "supply of services" (This is basic stuff - for the curious it comes from section 5 of the VAT Act 1994).

Strictly, the crucial questions are (1) whether the supply is outside the scope of VAT altogether (e.g. MOT tests and part II of the driving test, because that kind of testing is a statutory function); (2) whether it is exempted by a specific exemption (e.g. tests conducted by a doctor, optician etc and "examination services" provided by an "eligible body"); (3) whether it is zero-rated by a specific zero-rating provision; and (4) whether it was made by way of business; and (5) whether it was made by a person liable to be VAT registered (i.e. a person over the turnover limits).

All of that goes to whether the examiner ought to account for (=pay) VAT to HMRC on the fee (in which case, the examiner would doubtless want to add 20% to the fee) and is all very interesting (at least, to me) but unless the examiner has a turnover from all business in excess of the VAT threshold, is completely academic.

But, as others have already pointed out, in the case where the fee was paid to a school that passed it on to the examiner, the obvious point is that if the school was simply collecting the fee as the examiner's agent and that was made clear to the student, then the school has absolutely no business "deducting" VAT on the way through because the school is not providing any service for a consideration to anyone. There is no supply and so no VAT arises.

Again, as others have pointed out, if the school took a fee from the examiner for arranging the test and collecting the cash, then that fee would be subject to VAT, but that's not what is being discussed.
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Old 14th Mar 2016, 20:08
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Alexa - Lots of wordy stuff there but no answers. Testing has always been VAT exempt, there has been no service - it is a test of ability. Checkout the price lists of some of the largest testing ATO's - No VAT charged on any testing. In any case no VAT is charged by Government agencies such as the CAA - Examiners act on behalf of the CAA. I would have something to say if an ATO tried to charge me VAT on a test.
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Old 15th Mar 2016, 11:01
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Let's try not to get into a widdling contest as to who knows more about VAT.

The simple point I was trying to make is that, so long as the school was clearly collecting the cash as the agent of the examiner then the school has no business "deducting" VAT from the amount it passed on to the examiner. The school in that situaution makes no "supply" to the examiner or to the student.

That's it. End. The VAT status of the exam fee itself is irrelevant!

For the sake of completeness, I did set out in my previous email the steps a VAT practitioner would go through if the VAT status of the examination fee itself was in issue. However, in most cases, the examiner is likely to be below the (currently) 82,000 per annum turnover threshold for VAT registration so the nature of the supply (taxable at standard or zero rate, exempt or beyond the scope) is going to be academic.

Be that as it may, your assertion that all examinations are VAT exempt is wrong. The VAT status of any supply depends on the legal and factual background.

The provison of an examination that is required by statute is likely to be outside the scope of VAT. The MOT test is an example. See para 25.4 of HMRC Notice 700 for confirmation of the official view.

But, to illustrate that the position is far from straightforward, see HM Customs & Excise's Press Notice 1/84, giving the official view that Part I of the motor cycle driving test is fully subject to VAT, while Part II is outside the scope of VAT.

It doesn't matter why that's the case - it just illustrates that your blanket assertion that all exams are VAT exempt is too sweeping.
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Old 15th Mar 2016, 12:42
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Would this logic also apply if a school merely collects the instructor's fee and passes it on to the (non VAT registered self employed) instructor without adding any margin?
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Old 15th Mar 2016, 13:13
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dobbin1





Presumably you meant to say Examiner.


It's entirely plausible that an Examiner might have a business that is VAT registered but carries out his Examining duties separately and on a self employed basis, in which case he would not be allowed to add VAT. This is commonly the case where the Examiner owns the school.


If a school did not make an admin charge for passing on the fee they could not charge VAT on that fee. If they did make an admin charge they could only add VAT to the admin charge, not the fee.


However, it is still the case that the fee should be charged by and paid directly to the Examiner.
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Old 15th Mar 2016, 14:48
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Originally Posted by MrAverage View Post
dobbin1





Presumably you meant to say Examiner.


It's entirely plausible that an Examiner might have a business that is VAT registered but carries out his Examining duties separately and on a self employed basis, in which case he would not be allowed to add VAT. This is commonly the case where the Examiner owns the school.


If a school did not make an admin charge for passing on the fee they could not charge VAT on that fee. If they did make an admin charge they could only add VAT to the admin charge, not the fee.


However, it is still the case that the fee should be charged by and paid directly to the Examiner.
No, I meant instructor. Currently, my school charges students an instructor fee that is higher than they pay the instructors. They therefore have to charge VAT on the whole fee. If they just charged customers what they pay the instructor then they would not have to charge VAT on it. The school would miss out on the margin they make on the instructor fee, but if instead they just increased the aircraft rental cost on training flights by the same amount, the overall amount of VAT charged would be less and the headline price of a lesson would be lower (or, better still, the instructor could be paid a bit more:-)

Does this work? I don't see any fundamental difference between a self employed instructor and an examiner from the VAT point of view.
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Old 15th Mar 2016, 14:59
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If dobbin 1 is really asking about instructing, rather than examining, then it would theoretically be possible for a school to act as agent for a self-employed instructor and not charge VAT to the student on the tuition fee, so that the instructor can avoid charging VAT, so long as he remains below the registration limit. But there are significant issues which would make anyone sensible pause for thought and then take advice before proceeding:-

1. It would have to be absolutely clear to the student that the school was acting as agent for the instructor. If not, then the idea is a non-starter as a result of s. 47(3) VAT Act 1994 which allows HMRC to treat the supply from an undisclosed agent as being from the agent (the school) to the customer (student) anyway. So you can't do this without a lot of changes to the business model/documentation. How that might impact on the position vis a vis the CAA might be worth considering.

2. The whole arrangement would inevitably need to be structured rather artificially because the school does not work for nothing - it would still want its cut. There are two obvious ways of doing that. Either the school charges the instructor for the use of its facilities (plus VAT, of course) in which case the instrutor will want a bigger fee from the student, or the school charges the student a separate fee (plus VAT of course) for use of its facilities. Each route has VAT and other implications and complications.

3. Increased HMRC scrutiny is pretty much guaranteed. Expect in-depth enquiries and (just possibly) re-examination of the "self-employed or employed" issue for the school and its instructors. My concern here would be that HMRC might want to revisit that issue if a suitable case came along. At present schools can point to the Sherburn Aero Club case as a relatively recent decision that went in favour of self -employment for instructors, but it's not a strong decision. For those interested it is reported at The Finance & Tax Tribunal

Finally, please bear in mind that the "advice" in this post is worth precisely what you have paid for it!
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Old 15th Mar 2016, 16:35
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Sorry dobbin1, I had the thread title in mind.


However:


Most schools that are registered have two rates (and any that operate in excess of around 500 hours a year usually are, because they exceed the turnover limit).
One rate for solo hire and one for training, both including or plus a VAT amount. Any that have a non VAT charge for instruction with VAT being charged on the aircraft in their fleet (whoever that aircraft amount may be paid to) run the risk of an investigation as outlined by ALEXA. They could easily be seen by HM customs as deliberately structuring the business to avoid VAT.
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Old 17th Mar 2016, 09:00
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CAA fees are listed in a Statuary Instrument and are not subject to VAT, I suspect driving tests fall into the same category however; most FEs set their own test fee, and if charged through a company are a Service provided by that company. I therefore assume the company will apply VAT to them.
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Old 17th Mar 2016, 18:49
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Whopity is correct, I think, that the CAA's charges are not subject to VAT - they arise in respect of the fulfilment of its functions as a public law body. Section 41A VAT Act and Article 13 of the VAT Directive should apply, although HMRC's list of public bodies does not actually mention the CAA.

The position of an examiner who conducts a flight test and keeps the fee paid by the examinee is more difficult. I won't bore anybody with the theory - can I ask about the practice? Has anyone had a reasoned response from HMRC as to whether they regard the fee as subject to VAT (assuming the individual or his company has enough taxable turnover to be over the registration limit in the first place, of course)?
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Old 18th Mar 2016, 11:19
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I am not familiar with the case of examining fees, but just encountered a quite similar felt situation with VAT and postage stamps. If you purchase a stamp, it is VAT exempt (USO class 1 and 2 stamps). If somebody on behalf of you purchases a stamp, it is VAT exempt. If somebody purchases a stamp and puts it on a letter he wrote on behalf of you, he has to add VAT to the stamp as well. Transferred to the case of fees, I suspect the moment a fee is on a bill from the school it is no longer VAT exempt. By tax "logics" the service subject to VAT provided is the writing of the bill, as my tax advisor explained to me.
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Old 18th Mar 2016, 13:17
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We had the same directly from a VAT HMRC Inspector. We wanted to put instruction and examining down as 0% VAT as the instructors/examiners were not VAT registered. He said that as the Club was providing the service of producing the invoice, we had to make everything on it subject to VAT. What I do now is get students/candidates to hire the aircraft from the Club, then enter into a separate, private arrangement with the instructor. I actually produce monthly invoices for my students, outwith the Club. The problem occurs with Trial Lessons, where the total for the flight is on the invoice. We just have to accept that the instructional element has VAT charged on it, even though there's no input tax to claim back. The Revenue clearly benefit here.

We set up our Club as a not-for-profit limited by guarantee company, with a Constitution written specifically to position ourselves with a view to becoming a Community Amateur Sports Club. The inspector said that even if our application was successful, there would still be no relief anywhere from any VAT obligation. The only slight benefit might have been a reduction in Business Rates.

TOO
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Old 20th Mar 2016, 19:16
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Originally Posted by TheOddOne View Post
We had the same directly from a VAT HMRC Inspector. We wanted to put instruction and examining down as 0% VAT as the instructors/examiners were not VAT registered. He said that as the Club was providing the service of producing the invoice, we had to make everything on it subject to VAT. What I do now is get students/candidates to hire the aircraft from the Club, then enter into a separate, private arrangement with the instructor. I actually produce monthly invoices for my students, outwith the Club. The problem occurs with Trial Lessons, where the total for the flight is on the invoice. We just have to accept that the instructional element has VAT charged on it, even though there's no input tax to claim back. The Revenue clearly benefit here.c

We set up our Club as a not-for-profit limited by guarantee company, with a Constitution written specifically to position ourselves with a view to becoming a Community Amateur Sports Club. The inspector said that even if our application was successful, there would still be no relief anywhere from any VAT obligation. The only slight benefit might have been a reduction in Business Rates.

TOO
By splitting the provision of services for the sake of saving your students some money. I Fear you may be risking all their initial training. Rendering it useless as it must be conducted by an RF or ATO and very few Instructors have registered themselves, as individuals, as a Registered Facility.

Last edited by Level Attitude; 20th Mar 2016 at 22:44.
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