VAT rate for Ofsted reg. afterschool face to face kid's coding franchise/education provider

Hi, I need help determining the appropriate flat rate of VAT for my business. I own a single location of a franchise that provides kids with a face to face coding education. We are Ofsted registered and accept tax-free childcare payments and vouchers. There are basically three products/slash services available to consumers. 1. Customers can pay a monthly subscription for their kid(s) to attend the centre for one or two sessions per week. 2. All subscribers are required to pay a one-off set up fee. 3. Some customers can also purchase school holiday day camps. I am self employed. The business has three staff members. I did pay standard rate VAT for the first ten months. I deregistered since the start of 2023 as turnover was below VAT threshold and all major purchasing required was completed. Turnover is now anticipated to be over 85K for the trailing 12 months within a few months. I suspect that the business fits into a flat rate category but I don't know which one. Any advice would be appreciated.

Hi CodeNinjasEpsom,

Hello unfortunately we cannot tell you which Flat Rate to choose however please refer to more extensive list here if you cannot find anything specific
you can select any other activity not listed 12% FRS7300 - Trade Sectors: A to Z of flat rate percentages by sector.

Thank you.

CodeNinjas.....you need to get an Accountant, as you've indicated a number of potential issues which may only be compounded without proper advice. 1. If you are OFSTED registered then you could be seen as supplying exempt education services are more likely taxable, it depends on various factors, nature of your supplies, etc but holiday camps is a tricky area for VAT, these can be exempt or taxable supplies depending on what goes on/activities, who delivers the event, etc. If you are a sole trader, the supply of education of a subject ordinarily taught in schools is potentially exempt when supplied by you personally as a sole trader and standard rated when supplied by your employees (under private tuition rules). https://www.gov.uk/guidance/vat-on-education-and-vocational-training-notice-70130 2. If you are indeed supplying exempt education, you had no legal right to register for VAT in the first place and any input tax you reclaimed in the first 10 months was not yours to reclaim, equally, you should not have been charging VAT on your sales. 3. Assuming you are not supplying exempt education and your sales are standard rated, when you deregistered for VAT initially, if the value of your stock/goods/assets was more than £5k net then you would needed to have repaid output tax to HMRC upon deregistration relating to the stock/assets you held, unless the stock/assets were valued at less than £5k. A handful of computers and monitors and workstations/chairs would easily hit the £5k mark, as long as you declared output tax on those when you deregistered then that's good. 4. Flat rate scheme has a "limited cost business" rule, whatever flat rate you choose, if you meet the conditions for limited cost business then you must use a higher percentage rate than the one you have chosen, limited cost businesses are those which have few or minimal costs (such as an IT consultant or similar business with next to no costs/overheads). It might be one VAT quarter you are limited cost business and use the higher 16.5% rate and in another quarter you are not a limited cost business and can use your normal flat rate percentage. https://www.gov.uk/guidance/flat-rate-scheme-for-small-businesses-vat-notice-733--2 5. If your supplies are exempt education, then on the flat rate scheme you do not charge VAT to your customers but you still have to declare output tax at your flat rate percentage or the limited cost rate so it's not ideal. You really need to bottom out whether your supplies are taxable or exempt or both and assuming they are taxable, would flat rate provide you any benefit - it was meant as a simplification but seeing as you have to file returns digitally now (MTD) the simplicity is somewhat lost and because of the limited cost trader rules, some of the financial benefits are lost too. Numbers need to be crunched to determine the outcome. 6. If you make a mixture of taxable and exempt supplies then you would also be partially exempt, meaning there is a potential restriction on how much input tax you can reclaim on purchases.

Thanks - It seems as though the sales may fall into two categories. Our regular programs at 12% and our holiday day camps at 0% given how they are constituted to contain a significant amount of childcare. I will try that and see how it goes. Thanks.

Lee/CodeNinja Where are you getting the zero rate from? There is no zero rate under the flat rate scheme. Childcare or holiday camps are not zero rated. They are standard rated or they are EXEMPT. Two entirely different things. Exempt means you cannot reclaim input tax or even register for VAT, where you have both exempt and taxable sales, you are partially exempt and must not reclaim any input tax until you have performed a partial exemption adjustment on each VAT return. If you are saying your childcare is exempt, then be aware that under flat rate scheme you still have to declare output tax at 12% (based on your chosen flat rate), even on those sales which are exempt, so it'll be costing you money. Also, if you are saying your childcare is exempt, then your historical VAT recovery and deregistration was potentially wrong and you owe HMRC money for VAT reclaimed on equipment you were not entitled to. Also, you cannot have mixed flat rates, you pick the dominant supply, so if you are saying 12% is the dominant supply, then ALL your sales are at 12%, even the "zero" rated and exempt sales (but note there are no zero rated services relating to childcare in the legislation, it's exempt welfare services). Also factor in the limited cost trader rules.