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The UK tutoring market alone is estimated to be worth as much as £8 billion. Online tutoring has also proved to be a key driver of this growth, especially since the beginning of COVID-19.
The global tutoring market is even more impressive! In their latest report, Technavio estimates the market to be worth as much as $122 billion by 2028. Tutoring is also very varied, meaning there is a place for anyone who is interested in starting a tutoring business. Working with students is very inspiring, and what's more, it can prove to be very lucrative!
If you are considering starting a tutoring agency or becoming a private tutor, you probably have lots of questions. One of the most commonly asked questions is, “Do you need a licence to start a tutoring business?” The short answer is no, but we’ll break it down in this post about the legal requirements you need to follow.
Running Your Own Tutoring Business: What Licences to Have
When starting a tutoring business, there are two common set-ups: becoming a sole trader or registering as a corporation.
Required Licences
Both in the UK and the US, there are no specified licences you need to get as a tutor. However, there are a number of best practices most tutoring businesses follow, such as registering as a legal business structure and meeting all the legal requirements.
Furthermore, if you are working with children, you will also have to consider existing safeguards and background checks that might apply in your country.
Registering as a Sole Trader
Depending on your location, registering as a sole trader will be slightly different.
In the UK
You will need to make sure you register with His Majesty’s Revenue and Customs (HMRC) and declare yourself as a sole trader. Even if this is only part-time, you will still need to do so. To begin with, most tutors start out working on their own, keeping track of their own expenses and doing their own tax returns.
If you are a tutor based in the UK, you will need to hand in your tax returns every year after the 5th of April. The HMRC requires you to declare yourself a sole trader by the 5th of October in your second tax year. Declaring this status will give you a Unique Tax Reference (UTR) number.
You can learn more about the tax requirements as a sole trader in the UK here!
In the US
You can register to be a sole trader through the IRS. You must list your business's profit or loss information on Schedule C, which needs to be submitted along with Form 1040. As a sole trader, you will also need to keep your own tax records and ensure that your personal finances are kept separate from your business.
If you are a private tutor based in the US, you will need to contribute to the Social Security and Medicare systems. This is the equivalent of the payroll tax, which would usually be taken by your employee. However, unlike payroll tax, you will need to pay the full amount of contributions yourself since you don't have an employer who pays half.
You can learn more about tax requirements in the US here!
Registering as a Corporation
This option requires a slightly different tax setup. In the UK, the tax year begins on April 6th and ends on April 5th the following year. In the US, the tax year is usually the same as a calendar year, starting on January 1st and ending on December 31st.
Taxes in the UK
If you are based in the UK, you might need to pay some or all of the following taxes:
- Corporation Tax – This is a tax paid on any profits your business makes. It must be paid 9 months and 1 day after your account period ends. Since for most corporations, this is March 31st, you will most likely have to pay your corporation tax on January 1st.
- Income Tax – Even if you are a business owner, you will need to pay taxes on any personal income you get from your tutoring agency. This is usually paid through your business's PAYE scheme.
- National Insurance – This tax helps build up state pensions, and pay for public services. This service, like your income tax, is paid through the PAYE scheme.
- VAT – Value added tax (VAT) is paid on goods and services provided by a company. Your business does not automatically get registered for VAT. If your business makes more than £85,000 a year, you will need to register for VAT.
You can learn more about UK business tax setups here.
Taxes in the US
Paying tax as a tutoring business also varies from being a sole trader. Here are the main forms of tax you may need to pay:
- Income Tax – As a corporation, you must pay taxes based on your income after paying all business expenses. Depending on what type of business your company is registered as, you will likely have slightly different tax setups.
- Payroll Tax – If your agency employs tutors, you will need to pay your contribution to Medicare and Social Security for each employee. This will likely include both state and local taxes.
- Excise Tax – This tax is dependent on what industry you're in or what service you provide. Most of the time, excise tax is included in the price paid by the consumer.
- Sales Tax – Whether you have to pay sales tax will depend on where you are based. Since there is no federal sales tax, your tax bracket will be location-dependent. As a business owner, it will be your job to calculate, collect and disclose your sales tax.
- Property Tax – If you own a physical location where your tutoring takes place, you will need to pay property taxes.
What Qualifications Do You Need to Start an Online Tutoring Business (UK/US)?
While there are no definitive rules or qualifications needed for starting tutoring classes, a lot of tutors and agencies will have specific requirements for a person to join their team. This might include academic qualifications or certificates about a person's background.
It is typical for agencies to ask for:
- Specific qualifications
- A background check certificate (this may vary based on your location)
- Any specialised qualifications for the subjects you will teach
- In-house testing of your knowledge
How do I Obtain a Background Check for Starting a Tutoring Business?
If you are working with minors within your tutoring business, you will likely need a criminal record and background check. Depending on your location, these can be acquired in different ways.
In the UK
You can easily acquire a background check online using the UK Government website. A background check is required if you are working with people under the age of 18.
All you need to apply for the check is:
- Records of your address and where you have lived in the past 5 years.
- Your National Insurance Number
- Your passport
- Your driving licence
There is also a small fee (£23) you will have to pay when getting your Disclosure and Barring Service (DBS) check. This too, can be processed via the government website. The check will typically take around 6 weeks.
In the US
US law requires that you have a comprehensive background check if you are working for a business that interacts with minors. This means anyone employed by a tutoring agency needs to get a background check. This includes people who are not directly involved in giving tutoring or interacting with minors.
A comprehensive background check includes the following specific requirements:
- FBI fingerprint check
- Checking for your name on the National Crime Information Center's National Sex Offender Registry
- A comprehensive search of every state- and region-specific database where a tutoring agency employee has lived in the past 5 years.
What Insurance do Tutoring Agencies Need?
Another essential thing to consider when starting a tutoring company is covering yourself legally. For this reason, it can be great to get insurance that protects you and your business. The different types of insurance that you can get are as follows:
- Professional indemnity insurance – This protects you against any legal liability due to negligent service or advice given as a tutoring service.
- Professional liability insurance – This insurance covers against significant business errors or malpractices.
- Public liability insurance – This ensures that you and your private tutors are covered if injury or damage should happen to a third party in a place where you conduct business or tutoring services.
- Business and equipment insurance – This covers your business equipment, such as laptops, phones or academic resources.
Can You Run a Tutoring Business from Your Home?
Yes! As a business owner, you can tutor students from your home. However, it is important to keep in mind that you must make sure the space is safe for you, new students and other tutors to protect yourself legally.
Are you looking for an all-inclusive management solution for your tutoring agency? Try TutorCruncher for free today!
