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HM Revenue and Customs Brief 50/07

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Issued 13 July 2007

VAT: Court confirms HMRC’s policy on all-inclusive leisure facilities schemes

Unlimited access to all leisure facilities in a leisure centre, typically in return for a monthly or annual payment, is liable to VAT at the standard rate. The Court of Session confirmed HMRC’s long-standing policy that an all-inclusive scheme is a single supply of the right to use the facilities. The fee paid cannot be apportioned between supplies merely because one or more of them would be at a different VAT rate if charged for separately.

We understand that, for instance, local authorities and leisure trusts sometimes attempt to apportion fees between VAT rates; an example is a local authority apportioning between standard-rated sauna facilities and exempt swimming tuition. However, the different VAT rates only apply if there are separate charges for individual supplies of facilities. That is not the same situation as an all-inclusive fee enabling use of a variety of facilities over a period, even where there is a right to use services that would – individually - be predominantly exempt.

The VAT liability depends on the nature of the supply, which has to be decided at the time the all-inclusive fee is paid. At that time, there is only one supply; there is no basis for identifying separate ones because the leisure centre cannot know which the subscriber will use and how often.

The case considered by the Court of Session was The Highland Council (ScotCS CSIH 36), which upheld a decision of the VAT & Duties Tribunal ([2006] UKVAT V19542). The Tribunal decided that the supply was "a single supply of a right to exercise and enjoy the use of the Council's facilities as and when and to whatever extent the purchaser required”. It went on to say "the exercise of that right, given that there may be various tax treatments or various services, being a matter for the customer cannot be pre-determined and since it could not be known what the purchaser would do with his card to attempt to dissect the transaction into unrealistic or at best speculative components would not reflect reality and so would be an error".

The Court of Session agreed with the Tribunal’s decision, stating that “the transaction … is properly characterised as the provision of a contractual right to use the appellants’ facilities, for a fixed period, as described in the application form, at the point of payment”. Therefore, where other councils or leisure trusts are operating schemes similar to those made by The Highland Council, these are to be treated as a single standard-rated supply.

However, HMRC accept that, where a scheme offers facilities or activities that would all - if supplied individually - be exempt, the supply of the package is also exempt. This is because the liability can be pre-determined at the time of supply.

Nor does the Court’s decision affect membership schemes. Thus there is no impact on the extra-statutory concession for apportioning membership subscriptions to sports clubs run by non-profit making bodies.
If you have been applying the incorrect VAT treatment, you will need to account for any unpaid VAT as follows:

  • where the total of previous errors does not exceed £2000 net tax, an adjustment may be made to your current VAT return, or
  • where the total of previous errors exceeds £2000 net tax, a separate voluntary disclosure should be submitted to HMRC (in these cases the errors must not be corrected through your VAT returns).

Full details are given in VAT Notice 700/45: How to correct VAT errors and make adjustments or claims.

Further information can be obtained from HMRC’s National Advice Service.


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© Crown Copyright 2007.

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Article Published/Sorted/Amended on Scopulus 2007-07-13 12:29:11 in Tax Articles

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