CHALLENGE BY HMRC
We have written to Clients on several occasions since the beginning of December about the potential for VAT to be applied across all Martial Arts tuition businesses that exceed the threshold in turnover – this is currently £85,000.
It is crucial that a strong case is made for a continued exemption, and this is where we need your help.
One of the conditions required for exemption is based on evidence of Martial Arts being taught “ordinarily” in Schools or Universities. This is not be the only condition, but it is a vital one. Over a year ago we sent a questionnaire to you to help gather this information. The results provided a basic view that 11.8% of Martial Arts business could be teaching in schools within the curriculum. However, despite reaching out to industry bodies, we only received 600 respondents; this is not enough data to support the argument that specific Martial Arts styles are taught widely and regularly across the country.
Later this year, a tribunal case will take place which could provide clarity on what is a very complex subject. But please be assured that HMRC’s objective is to take more tax than they do now. We need to win this case to secure the future for martial arts training for the thousands of students attending class each week. The necessary price increases would inevitably reduce participation, particularly for those students in lower income areas.
Funds have been raised for the legal case and so many of you have made contributions, but we now need more information so that we can put a defence in place.
Last year, law firm Mishcon De Raya was appointed to re-assess any additional information that may be required for the tribunal. They have concluded that we need to provide a more in-depth view about the contribution Martial Arts provides for young people within schools. This will mean a stronger case can be made showing the contribution that Martial Arts delivers and not just meeting the criteria set out by HMRC.
There are no set rules that we can provide information to meet, so the objective is to understand the key areas of contribution within the school environment and to separately obtain evidence of how Martial Arts may have changed the lives of specific individuals.
To support the case, another questionnaire on the lines of that done in January 2018 but with additional questions was sent to all Clients at the beginning of December. The aim of this is to discover the extent to which Clients teach within the curriculum (e.g. as part of PE or towards a set examination) at schools, but also to establish the activity in before and after school sessions. We also need the approximate hours spent on all the activities including hours spent towards other extracurricular activities such as that of the Duke of Edinburgh’s award scheme that is regularly run within school education.
Although some Clients have told us about the many wonderful activities that they provide within schools, as it stands, only 150 responses have been received to the current questionnaire. Unfortunately, this may not be enough to make a convincing stand against HMRC. We would like to continue to review information about specific cases and we will check them all with the layers to see if they will assist.
RESULT OF INACTION
If that clarity means that VAT will need to be charged and paid over to HMRC this could be catastrophic for your income especially if you feel that you cannot raise your prices. It is HMRC’s objective to remove the current exemption and therefore you would need to hand over 1/6 of your turnover in tax.
You may say that none of this concerns you as you are currently below the threshold for VAT and therefore it will not affect you. You could be wrong, as you may have noted the threshold at VAT begins to apply has not been increased in recent times and is currently frozen until 2020. However, the UK has the highest threshold in Europe and cynic in me says that a freeze could be a prelude to a reduction even if that could be politically difficult.
Help us to demonstrate that the work you do not only contributes significantly to resources available for schools but also changes the lives of so many that train in the Martial Arts.
PLEASE complete the questionnaire TODAY even if your only answer is: “no I do not teach in schools in the way described” as this will help us to see the full picture. Also, can you see if you have examples of great work in improving the lives of your students and let us know either in the questionnaire here or send a separate e-mail to marketing AT nestmanagement.co.uk
We need as much data as possible in order to mount a credible defence of the exemption remaining so PLEASE ensure that all you instructors, franchisees, LLP partners complete the questionnaire and finally do share this with all your Martial Arts friends and ask them to do the same.
We need to collect all information by mid February or it may be too late so lets not “sleep walk” into damaging the tuition provision that student enjoy today.