Academies that provide a breakfast or after school club find that they are not only a good way to generate a bit of extra income, but they create some goodwill with the parents by helping out those who work and have trouble with childcare at either end of the school day.
The fees charged should be classed as non-business income. This is important because non-business income will not be taxable and will fall outside the scope of VAT. Income from these sources therefore won’t count towards the VAT registration threshold. HM Revenue & Custom’s (HMRC) position on this is not 100% clear. Their guidance indicates that before and after school clubs between the hours 8.00am and 6.00pm would be classed as non-business, but don’t be too concerned if your own club falls outside of these times. There is no concrete guidance on what happens for clubs beginning before or after these times, and although in theory this does mean that HMRC could seek to treat a portion of the income as exempt business income, this is considered highly unlikely. The times are stated, we believe, merely to try to draw a distinction between extensions to the school day – generally to assist working parents – and the provision of separate activities that are very different to the school’s core activities. A holiday club, for example, would be treated as business income, and it would not be uncommon for holiday clubs to be attended by pupils from other schools.
There is also the direct tax angle to consider. Since the income is non-business there will be no corporation tax issues, as long as you can show there is no profit. If the purpose of these clubs is to generate additional income then there may on the face of it be a small profit. However, it should be relatively easy to allocate a proportion of certain overhead costs, admin staff costs etc. against the income from these clubs, which together with any direct staffs costs, should minimise any profit. Ultimately, unless you have other business income and profits, there is also the small trading exemption, which removes up to £50,000 of business income out of corporation tax.
