A source of confusion and upset can be when a non VAT registered yoga teacher runs a course from a VAT registered studio on a split revenue basis.
The issue arises when expectations vary on whether the split will be pre or post VAT.
For Example:
- A workshop is being run which brings in gross revenue of £10,000. The studio hosting is having 40% and the teacher 60%.
- Suppose the studio is VAT registered, and the teacher is not. There are two choices as to how the proceeds split
- If the split 60:40 is worked out on the gross £10,000 then the studio receives £4,000 and the teacher £6,000. The studio has to pay VAT of £1,667 (on £10,000) on its share, leaving it with £2,333
- If the split is worked out after VAT, then from £10,000 £1,667 is deducted and the net £8,333 split 60:40. The teacher receives £5,000, the studio £3,333.
- Arrangements like this need to be properly documented to avoid disappointment – we’ve been consulted a number of times by Yoga Teachers disappointed to be receiving a split after VAT
Disclosed Agency
A way to resolve this problem is to work with a “Disclosed Agency” – this means
- The studio discloses publicly it is acting as agent for the teacher. It doesn’t have to disclose the percentage split
- This disclosure must be prominent in booking information and receipts
- With a disclosed agency the Studio only pays vat on its share of the revenue
Using the example from above:
- Gross revenue £10,000 – £4,000 studio, £6,000 teacher
- Studio pays VAT on £4,000 rather than £10.000
- VAT liability is £667. Studio nets £3,333. Teacher £6,000
Agreements
In situations like this its important terms are agreed before the workshop is run, and both parties are clear about how vat works, preferably by exchange of letters / emails:
- Percentage Splits
- Whether these are on post VAT or pre VAT income
- Whether a disclosed agency is being run
- How costs of the event are being split
If the agency is not disclosed – it is then undisclosed – and the treatment is as per the first example
Case Study
To see a Case Study setting this out in more detail, follow this link and it will open in a new page