VAT threshold and franchises

Hi, I’m a limited company who runs fitness classes, currently I do this on my own so all income is my own. However, Im in the process this year of taking on additional instructors to run the classes in their own area as a franchise. Although slightly differently in that rather than them paying a monthly fee to me or a percentage earnings, I plan to handle all the bookings and payments through my existing booking site and to pay them a percentage. My concern is their percentage income would be coming through my accounting books first bringing me closer to VAT threshold when actually the money is theirs and will be going straight out to them. Would this still count towards my VAT threshold or could I discount their income? Thank you

You are going to need very robust and clear contracts that indicate you are acting as an agent in relation to the bookings and collections of funds for the franchisees and acting as principal in relation to bookings and income when relating to your own business. You're best off speaking to an Accountant or a lawyer to ensure the franchisee agreements protect you from HMRC thinking that all the money in your bank is your money. HMRC are not going to give you tax planning advice here or how best to structure your business. At best, could you not have a separate bank account/client bank account for the franchisee income so as to create some sort of separation between you and your franchisees? Useful read here from the ICAEW https://www.icaew.com/technical/tax/vat/vat-articles/three-vat-parties-explained Also HMRC internal manuals discuss the nuances here https://www.gov.uk/hmrc-internal-manuals/vat-taxable-person/vtaxper36500

Hi Rosieb Bligh,
You have set up the arrangement in a way that the limited company is making the overall supplies and so the total income would go towards your taxable turnover.
The payments made to the additional instructors is a commission charge that the instructors are charging to the limited company and so you wouldn't be able to discount this income from your taxable turnover.
Please see the guidance regarding when to register for VAT:
Who should register for VAT (VAT Notice 700/1) 3. Working out whether you need to register
Thank you.