Legal & Regulatory Compliance
Legal & Regulatory Compliance
Achieving Compliance with the Law
Tax
If you receive income for tutoring services, you may need to tell HMRC about this income via a tax return.
If you haven’t filed a tax return before, you’ll need to register for Self-Assessment as soon as possible. Go to HMRC’s interactive guidance on Gov.UK around additional income, for more information.
Employment Agency Legislation
You must be compliant with the Employment Agency’s Act and associated Conduct Regulations. Some more detailed examples are set out below:
a. it is illegal to collect payment on behalf of tutors (self-employed or otherwise) that you introduce to clients unless your company (and not the tutor) is providing the tuition service – in which case you have to charge VAT on the tutor’s part of the fee in addition to your commission;
b. it is illegal to charge tutors a fee (even if it is described in a different way such as ‘commission’) for introducing them to clients;
c. agencies must fulfil the necessary safeguarding, health and safety and other checks required under the Act (these go beyond an Enhanced DBS)
Directors of tuition companies that breach the above requirements are breaking the law to the criminal standard and may be prosecuted or prohibited from running an organisation, and the court also has the power to issue unlimited fines under the 1973 Employment Agencies Act and the 2003 Conduct Regulations.
EAS has provided detailed guidelines showing how Tuition Companies can become compliant. You can read these guidelines here but in summary there are two possible routes:
a. Employment Business, whereby your company engages with an employed, or subcontracted self-employed tutor to provide services on behalf of your company to your company’s client. In this model you would be required to charge VAT on the entire fee (including the tutor’s fee).
b. Employment Agency, whereby you send the client two invoices – one from your company that outlines your commission/fee + VAT, and a second invoice directly from the tutor to the client (without VAT if an exempt supply). For convenience, you can send the client the tutor’s invoice along with your invoice, but you cannot collect payment for it. This payment has to go directly from the parent to the tutor and the parent will in all cases be aware of the amount you get as your commission and the amount the tutor gets.
PLATFORM or PUBLISHING models are captured by EAS legislation, thus you must operate as either an Employment Business or an Employment agency, as the provision of information alone is enough to be captured under EAS legislation. Depending on your chosen operating model, you will need to comply with the associated conduct regulations. Failure to operate as either an Employment Business or Employment Agency and comply with the regulations is a criminal offense.
The traditional model whereby the agency sends the parent an invoice on behalf of the tutor, collects the funds on behalf of the tutor (even if this is into a trust or client account), then deducts the agency commission and passes the balance to the tutor a breach of the law and is a potential criminal offence. TTA has worked with various members and EAS to collectively negotiate a compliance period. TTA members will have until the 31st of December 2022 to change their business model and/or processes in order to be compliant with the rules. As the industry’s professional body, TTA has a duty to ensure that all members operate legally. For that reason, all members must declare and specify the compliant business model they intend to use to TTA by the 31st December 2022; failure to comply with the law will mean that their TTA membership will be revoked. Further communication will be sent in the near future in relation to this. TTA exists to protect and set apart reputable tuition providers and an essential core principle of TTA membership is that all members should comply with relevant laws and regulations.
a. Extended Deadline
The good news is that EAS wants to help make compliance possible without putting undue pressure on the industry. EAS are giving the industry sufficient time to change their business models. They have agreed to a deadline of 31st December 2022, by which time all companies need to be operating as either of the two permitted options outlined above (Employment Business, or Employment Agency). EAS have made it clear that no further extension of this deadline will be granted; any businesses that are non-compliant after this deadline will be liable to prosecution. EAS have assured TTA that, other than where complaints are received by them (e.g., from tutors or clients), they will not initiate enforcement action against TTA members prior to the 31st of December.
b. Stripe Connect
EAS have in principle accepted that a payment handling scheme that allows tuition agencies to use Stripe Connect to automatically split the payment into the tutor part and the client part might be compliant depending on its careful operation. This allows one statement to be sent to the client, (with links to see the individual tutor and agency invoices), but it only requires the client to make one payment, to a third-party payment provider. This can be made on a card, or BACS. Many of you will be familiar with TutorCruncher, who have developed a system that should be compliant; other companies may commission the design and implementation of such systems as well and we will share details of these as we become aware of them. It is important to note that you must not control the payment mechanism.
It took a great deal of work with EAS to agree that “Stripe Connect” payment process detailed above can be compliant, if carefully operated. It is imperative that employment agencies who use this model (rather than sending two invoices and collection separate payments) respect the following conditions: – You cannot force a tutor to use the Stripe Connect system (or to specify how they will be paid by the client). They are free to take cash payments, cheque or any other form of payment from the client that they choose, if they wish.
– Tutors and agencies will each need to set up individual Stripe accounts (in addition to their bank accounts into which funds will ultimately be received) to use this system. So, if your agency works with 400 tutors, each will need their own Stripe Connect account. You cannot set these up on their behalf. – Tuition agencies are not permitted to operate Stripe Connect accounts themselves. These must be operated by a third party not related to the tutor or the agency.
c. Question & Answer Webinars
TTA will be running a series of webinars to explain the problem and answer questions. EAS will provide a senior representative to answer questions in a further webinar. The first two Webinars were held on the 6th and 7th of July. This gave a background to the changes and the legal challenges already made.
The only business models that are compliant are:
● Employment business, where the tuition company has a legal relationship to provide the tuition to the client and employs or subcontracts (i.e., to self-employed tutors) other companies, or individuals to deliver the tuition work. VAT is payable on the full cost of tuition, including the part paid to the tutor as their fee.
● Employment agency, where the tuition company introduces a tutor to work directly for a client, taking a fee/commission from the client in return. As the tutor is paid separately by the client and the tutor’s fee is never under the control of the tuition agency, VAT is only liable on the tuition agency’s fee/commission. VAT is not normally payable by tutors delivering tuition personally (either because it is below the VAT threshold or because the tutor is a sole trader).
● All tutors must be self-employed and therefore neither the Employment Agency, or the parent are allowed to supervise, direct or control tutors
● If the job requires anyone to give supervision, direction or control, then the parent, or agency must employ the tutor and be subject to the usual employer requirements (operate PAYE, pension, holiday etc.)
● The Employment Agency acts in a similar way to a recruiter and has a contract with the client (i.e., parent, or student), detailing what the fee is and how it is calculated
● The Employment Agency is not responsible for paying tutors, the parent is
● The Employment Agency cannot try to solve disputes between the tutor and the parent – once they have made the introduction, the employment agency has to step out completely
● The Employment Agency cannot call parents to give regular monthly ‘check ins’ on a tutor’s progress. They can however contact the parent for a check in after the initial introduction and first lesson.
● The tutor sets their own fee, and the Employment Agency cannot set levels of pay (although it can provide advice to a tutor on what levels of pay might be appropriate, it cannot set the rate for the tutor) When you offer a job to a tutor, you have to ask them what their rate is, rather that say, ‘we are offering you £x per hour for this job’. You are allowed to guide tutors on, ‘market rates’. You then must tell the parent how much the tutor will charge them and how much you will separately charge for your commission for the work they have booked.
● The Employment Agency cannot terminate the tutor’s services, only the parent or tutor can.
● VAT needs only to be charged by the Employment Agency on their own fee (not the portion payable to the tutor). Employment Business Route:
● Tutors can be self-employed or employed
● Because Employment Businesses have the legal responsibility to provide the tuition service under the agreement they can check in with parents, make changes to the service, price or any other business terms that exist between the Employment Business and the parent. In most cases, an Employment Business can set the terms on which its employees or self-employed subcontractors work (although the ability to do this is more limited for self-employed subcontractors).
● The Employment Business can set the fee offered to the tutor for the work. Under certain circumstances, it may be able to amend this fee, but this will depend on whether tutors are employees or self-employed subcontractors and the detail of the contract with them.
● The Employment Business can terminate the tutor’s services at any time (in accordance with your agreement with them, presuming there is a termination clause or similar).
● The Employment Business charges VAT on the entire amount of the invoice, including the tutor’s fees. There is no need for the parent to be informed how much the tutor is being paid or to be sent a separate invoice – the parent pays for and receives the tuition from the Employment Business and how the Employment Business supplies that tuition is up to them.
There are many rules that limit the interaction between individual self-employed tutors and the Tuition Companies, parents and students who engage them. For example, tutors cannot be supervised, directed or controlled, they must be allowed to substitute themselves, must be subject to financial risk and must be able to work for any client without restriction. A full list is available here: https://www.gov.uk/guidance/check-employment-status-for-tax
If your relationship with the tutor strays into one of employment, you may be fined by HMRC and liable to pay the VAT and possibly National Insurance, Pension and other statutory employer obligations.
In the case of an Employment Business, it will be the tuition company who is considered to be the employer. In an Employment Agency, it will be the parent. It is your responsibility to ensure that if control is being exerted (i.e. the parent is telling the tutor what to teach and how to teach it) then the tutor is employed.
Contact details for REC for template agreements https://www.rec.uk.com/
EAS helpline for specific questions eas@beis.gov.uk / 0207 215 5000
HMRC’s employment status indicator and VAT helpline 0300 200 3700