The new visa restrictions and the sledgehammer methodology of the UKBA have been deeply unsettling for the EFL industry in the UK, and even cataclysmic for some. It’s nothing to with EFL, but you can see why the politicos are getting jumpy if you watch last night’s Newsnight. It’s really shocking. It’s also – I think – disturbing that Phil Woolas talks about “closing down” colleges, when they are rather obviously still open; he means taking them off the UKBA register – but who in the general public would have understood that? The people in the piece are criminals, and should be under arrest.
But another threat has emerged – one which most schools will have thought was dead and buried. I am no VAT advisor, but this is what I understand. The issue is that w.e.f. January 1st this year the place of supply of most services becomes the place where the customer of the service belongs. Thus, since EFL providers are customers of overseas agents, their introductory services are now deemed to be supplied in the UK. Since these agents are unlikely to register for VAT in the UK (and so add VAT to their invoices), something called the “reverse charge” procedure applies, meaning that the customer, the EFL provider – if VAT registered - adds this to the invoice and pays the VAT on the agents’ behalf, and either gets it back or not depending on the services they provide.
So no problem if you’re not VAT registered? Not exactly. Since agents’ commission is now (as I understand) vatable, then in the event that the levels of commission payable reach £68,000 in a year, VAT registration becomes obligatory, and registered schools will then have to pay VAT on the commissions. Net invoicing may well be a partial way round, but may well not apply to all transactions. So, from where I sit, the light is flashing amber. With a bit of luck I've got this wrong. Any views out there?