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HMRC internal manual

VAT Taxable Person Manual

From
HM Revenue & Customs
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Particular trades: driving schools: accounting consequences

You will now be able to decide which of the three supply situations applies to your trader. The consequences are as follows.

  • We suspect that only a minority of driving schools now employ their instructors under contracts of service. But if this is the case, the school is supplying the tuition to its pupils, and must account for output tax on the full value of fees received. There is no supply by the individual instructors, who are simply receiving remuneration (wages) for their services as employees.
  • If the instructors supply their services to the school, they need only account for output tax on these supplies if the value exceeds the registration limits. The school must account for output tax on the full value of the fees received from pupils.
  • If each individual instructor supplies tuition direct to pupils, output tax is only due on the value of those supplies if an instructor exceeds the registration limits. However, payment made by each instructor to the school is consideration for a supply of agency services by the school, and the school must declare output tax accordingly.

The accounting consequences of all three scenarios are illustrated in diagrammatic form in the driving school diagrams (Word 33KB). You may find it easier to read the following tables.

1. The driving instructors are employees of the driving school

### Action ### VAT treatment
   
1. The instructor collects £15 from pupil and retains £5. £5 = Consideration for the services of the instructor as an employee outside the scope of VAT.
2. The instructor passes £10 back to the school.  
3. School declares output tax. £15 = Consideration for the supply of tuition by the school to the pupil.

2. The driving instructors are self-employed contractors engaged by the school under contracts for services. They supply their services to the school; the school then makes an onward supply of tuition to the pupils

### Action ### VAT treatment
   
1. Instructor collects £15 from pupil. £15 = Consideration for the supply of tuition by the school to the pupil. School declares output tax.
2. Instructor retains £5. £5= Consideration for a supply of services to the school. Instructor must declare output tax if he is registered or registrable. School reclaims input tax on £5 if output tax is charged by the instructor.
3. Instructor passes £10 back to the school. Not the consideration for any supply.

3. The driving instructors are independent principals who supply tuition direct to their pupils, using the school as an agent

### Action ### VAT treatment
   
1. Instructor collects £15 from pupil. £15 = Consideration for a supply of tuition services from instructor to pupil. Instructor must declare output tax if he is registered or registrable.
2. Instructor retains £5.  
3. Instructor passes £10 back to the school. Instructor claims input tax on £10 if registered or registrable.
For the school, the £10 = consideration for a supply of agency and other services (such as hire of vehicle and advertising), by the school to the instructor. School must declare output tax.