HM Revenue and Customs Brief 37/10
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Issued 3 September 2010
VAT: leisure trusts providing all inclusive membership schemes
With effect from 1 April 2009 HM Revenue & Customs (HMRC) amended its
interpretation of the law and therefore its guidance on the VAT treatment of
membership schemes allowing unlimited access to leisure facilities in a leisure
centre. Businesses that will be most affected are community leisure centres that
are run by non-profit making trusts. Supplies made by commercial organisations
are not affected and remain taxable at the standard rate.
This Brief cancels Revenue & Customs Brief 50/07 and Revenue & Customs Brief
Supplies of services closely linked with and essential to sport or physical
education, in which an individual takes part, are exempt from VAT when supplied
by an 'eligible body' (essentially a non-profit making body not subject to
commercial influence) as set out in the Value Added Tax Act 1994, Schedule 9,
Group 10 (Sport, Sports Competitions and Physical Education). Prior to 1 April
2009 HMRC’s view was that where a scheme offered, over a period, unlimited use
of a variety of both taxable and exempt facilities, typically in return for a
monthly or annual payment, there was generally a single supply of the
standard-rated right to use the facilities. However, following representations
from the leisure industry and taking into account the comments made in the Court
of Appeal in HMRC v Weight Watchers (UK) Ltd (2008) (STC 2313) about the typical
consumer, we no longer see the supply as a right to use the services but as
being the supply of underlying services.
The Weight Watchers case indicated that it is appropriate to look at the
transaction from the viewpoint of the typical consumer, rather than the
supplier. The extent of the linkage between the relevant transactions must be
considered from an economic point of view; the question then is whether it would
be artificial to split the transaction into separate supplies. If it would be
artificial, then there will be a single supply and the predominant element from
the viewpoint of the typical consumer, will determine whether the supply is
exempt or standard-rated.
VAT liability depends on the nature of the supply which has to be decided at
the time the all inclusive fee is paid. Where the supply is a single supply that
would be artificial to split there can only be one overarching liability. In
most cases, the typical consumer who purchases an all inclusive package will
have access to a range of facilities at the leisure centre. Usually most of
these facilities would, if supplied individually, be exempt as 'services closely
linked with and essential to sport or physical education in which the individual
is taking part', (for example use of the swimming pool, showers, changing
rooms).Therefore, in cases where the predominant reason for purchasing an all
inclusive package is to use the range of available sports facilities, the single
supply is exempt.
In some instances packages may include facilities that would be
standard-rated if supplied on their own, for example, sauna facilities. However,
providing that the predominant reason that the typical consumer purchases the
package is to use the (exempt) sports services, the supply of the package is
If the predominant reason a typical consumer purchases an all inclusive
package is to make use of standard-rated facilities the single supply is
Effects of the change
The effect of this change is that since 1 April 2009 non-profit making
bodies, including leisure trusts which were previously charging VAT on their all
inclusive packages, will in the majority of cases have to treat them as exempt.
If businesses make both exempt and taxable supplies they will be partly exempt
and will have to apply the partial exemption rules to determine how much of the
Input Tax incurred on their costs can be deducted. The partial exemption rules
are set out and explained in Notice 706 Partial exemption.
Notice 701/45 Sport will be amended in due course.
Capital Goods Scheme (CGS) items; the effect of the change
The CGS applies to buildings and some items of computer hardware. It adjusts
Input Tax claimed on building related capital expenditure for any changes in use
over a ten year period. It includes both purchases of buildings and subsequent
capital expenditure such as refurbishments. If a business is transferred as a
going concern (TOGC) and a building subject to the CGS is one of the assets
transferred then the new owner must continue the adjustments. The CGS rules are
set out and explained in Notice 706/2 The Capital Goods Scheme.
After affected bodies begin treating their supplies as exempt there will be
an apparent change of use from taxable to exempt. However, the policy change
represents what the true liability always was, assuming that sports providers
have not changed the way they operate. The CGS adjusts the true amount that was
initially claimable ignoring any errors that may have occurred whether they can
be corrected or not. Therefore, no significant CGS adjustments are likely
provided that the way sports facilities are supplied has not changed since any
capital expenditure was incurred. If you are concerned that the CGS may
significantly affect you then please contact your local VAT Office.
If sports providers acquired a CGS building asset as part of a TOGC then the
CGS may require adjustments if the previous owner deducted and was properly
entitled to deduct Input Tax on the item. This is likely if the previous owner
was a Local Authority. If you are concerned that these circumstances may apply
to you then please contact the VAT Helpline on Tel 0845 010 9000.
Making claims or adjustments
The change described should have been implemented from 1 April 2009 and there
is no requirement to make adjustments in respect of supplies made prior to that
date. However, where a business wishes to make a claim to HMRC (under section 80
of the VAT Act 1994) for repayment of VAT incorrectly accounted for on sports
services, they may do so, subject to the conditions set out in Notice 700/45 How
to correct VAT errors and make adjustments or claims. These will be subject to a
transitional four year limitation period and 'unjust enrichment' provisions.
Where you are in any doubt about the correct treatment please contact the VAT
Helpline on Tel 0845 010 9000.
About the Author
© Crown Copyright 2010.
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Article Published/Sorted/Amended on Scopulus 2010-09-06 15:19:04 in Tax Articles