Do you know what the recent case law means for you?
Every Tutor Agency is facing change. It starts with looking at how you operate your business. This means reviewing everything you do and how you do it.
You need to do this because every Tutor Agency now has to choose between one of two models. They must operate as either an Employment Agency or as an Employment Business. It almost seems straightforward – if only it was.
Why’s this a challenge for a Tutor Agency Business?
The challenge is a traditional Tutor Agency has been operating as a hybrid model – part Employment Agency and part Employment Business. It’s a model that’s worked really well for the Tutor Agency, the tutors and the parents/clients – until now. That’s because failing to be clear about which business model you’re operating will now mean a fine and enforcement action from the Employment Agency Standards.
For a Tutor Agency Business choosing one of the two models means:
- Understanding how that business model operates
- Making significant changes to your Tutor Agency business
How does it work?
Let us give you an example.
As a Tutor Agency you may feel that operating as an Employment Business feels right. You like the idea of fronting the relationship between tutor and parent/client and welcome the idea of, for example stepping in to resolve any issues which occur between a tutor and the parent/client. Most of the issues that you’ve dealt with have been relatively minor and easy to sort out. You’ve a good network of tutors and have great working relationships.
It’s not that straightforward
Then you realise that, as a VAT registered Employment Business you need to charge VAT on the total invoice that you send to the client. So, for example, if the tutor’s fee is £35 and your fee is £15, you charge VAT on the whole £50. Previously you probably charged VAT just on your fee of £15. So, your fee was£15 + the VAT of £3, which made a total of £18.
Since you’re handing the invoicing (in this example) you probably can’t claim the VAT education and learning exemption (and so not charge VAT) that a tutor can.
From a business point of view, you also need to consider the final invoice. Now the total parent/client invoice is £60 (£50 + VAT of £10). Before it was £53 (£15 + VAT of £3 + £35 tutor fee). Does this make your business less competitively price to similar agencies in your area? Will the£7 increase make a difference. As a one-off it may be ok – but what about over 30 weeks?
That’s just one of the many issues that you’ll need to consider.
Any changes you make in your business will mean making tutors change too. Perhaps now is the time to ask tutors to change how they invoice or receive payment? You may need to do checks that you didn’t previously have to. For many Tutor Agencies it can start to feel like too much on top of all else you have to do.
Every Tutor Agency Business needs to act fast
Unfortunately, there’s also a time constraint. The Employment Agency Standards have said that they won’t take an enforcement stance with members of the Tutors Association until 31st December 2022. After that date, the gloves are off!
So, what can you do?
- Make sure that you’re totally clear what each type of business model involves
- Take stock of your own business
- Write a list of pros and cons for each model
- Discuss this with relevant professionals
We know that this isn’t an easy task.
We’re putting together information each month. If you’d like some free information, please sign up below.
We’ve also put together a Tutor Agency Hub which includes helping and supporting to make that decision. Start by joining us with some initial sessions where we examine each of the business models. Click here to find out what’s included and how it works.