If you’re running a martial arts company, there are lots of things you need to account for when running your business. And one of the things you might be wondering about is whether your business needs to be VAT registered. Many people argue that martial arts classes should count as tuition, covering an educational exercise covered in many schools. If that were the case, it would make martial arts businesses exempt from tax under the current rules.
But is it as simple or as straightforward as that? Up until now, it has been a contested issue but recent developments tell us that, unfortunately for many martial arts business owners, martial arts businesses do need to be VAT registered
Premier Family Martial Arts LLP
The First Tier Tribunal (FTT) ruled against a kickboxing company called Premier Family Martial Arts LLP. The judge ruled that “kickboxing is not an activity which is commonly taught at schools or universities in the European Union.” They were therefore ruled liable to pay £411,497 in tax for the supplies they’d bought for the classes without registering for VAT.
The issue came about after HMRC started a VAT enquiry into the company, and the time period covered spanned 6 years between 2011 and 2017. The company argued that they were VAT exempt under Article 132(1)(j) of Council Directive 2006/112/EC stating EU member states should exempt transactions such as tuition given privately by teachers and covering school or university education
There’s another argument under the Value Added Tax 1994 which states “The supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer.” This was also used as part of the company’s defence.
Ultimately, the tribunal ruled that the activity was purely recreational and this is why it fell outside of the articles mentioned above. And as a result, the martial arts company and any other similar companies cannot be considered exempt from paying VAT going forward.
This at least means that the issue has clarity and businesses know that they should register for VAT at the earliest opportunity to avoid similar issues. If you’re not sure how to do that, the information below should clear it up for you.
So, how and when should your martial arts business register for VAT? You can register for VAT voluntarily at any time you want, and that’s what many businesses decide to do because it’s easiest for them. There is a point at which VAT registration becomes compulsory for your business too though.
You have to register for VAT if you expect your taxable turnover to be more than £85,000 in the next 30-day period or if your taxable turnover was more than £85,000 over the past 12 months. The process of registering for VAT is pretty simple and can be done following the guidance on the gov.uk website.
TreyBridge Accountants can assist with the process of dealing with your VAT obligations, so don’t hesitate to get in touch with us if you require any additional assistance.