HM Revenue and Customs Brief 6/17 - VAT - treatment of sports facilities by local councils
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Purpose of this brief
This brief provides information on how HM Revenue and Customs (HMRC) will treat
claims for VAT
refunds by local authorities following the Court of Justice judgment in
London Borough of Ealing which was handed down on 13 July 2017.
Who should read this
Local authorities providing members of the public with sports
facilities and their advisers.
Explanation of change
The effect of the judgment is that councils can opt to make a
claim for exemption on the sporting services that they supply to
members of the public under the European VAT directive. This
means that related VAT
on inputs will be restricted where it isn’t treated as insignificant
under paragraph 8.2 of VAT
Notice 749: local authorities and similar bodies. The alternative is
that they can continue to tax those supplies on the basis of UK law. This means that VAT on inputs will
continue to be recoverable where it relates to taxable supplies.
expects councils to account for VAT
on a consistent basis. This means that where councils have opted to
make a claim for exemption in respect of past periods, they’ll be
expected to continue to exempt supplies in subsequent periods. Claims
won’t be accepted where councils have proceeded on an inconsistent
The Court of Justice of the European Union found, in the case
of the London Borough of Ealing (Case C 633/15), that the UK had incorrectly
excluded local authorities from the exemption for the provision of
sporting facilities. Local authorities had been excluded from the
exemption to ensure that there was no distortion of competition.
However, the court decided that any restriction on those grounds had to
be applied to both public bodies as well as private non-profit-making
bodies providing sporting facilities. It followed that the local
authorities were entitled to claim direct effect and therefore to treat
those supplies as exempt from VAT
provided that they did so on a consistent basis. HMRC has
accepted the decision.
This means that local authorities are entitled to recover any
net over-declarations they have made as a result of having treated the
supplies as taxable rather than exempt. The net over-declarations are
calculated after deducting from the over-declared output tax any input
tax wrongly claimed by prescribed accounting period (VAT return) on the
assumption that the supplies in question were taxable and not exempt,
unless that input tax is treated as insignificant read paragraph 8.2 of
VAT Notice 749:
local authorities and similar bodies.
appeals to the First-tier VAT
now intends to process outstanding claims made by local authorities
making supplies of services closely related to sport where:
- the local authorities concerned have asserted their right
to direct effect of the sporting exemption on the basis of London
Borough of Ealing (Case C 633/15) on a consistent basis
- subject to satisfactory verification of the amounts claimed
This won’t include any amounts claimed on other grounds. Where
that amount results in an interim net payment to the local authority,
then that amount will be credited.
reserves the right to refuse claims on the grounds of unjust enrichment
where they’re able to show that the claimant passed the economic burden
of the VAT
charge on to their customers. The provisions are explained in sections
9 and 10 of VAT
Notice 700/45: how to correct VAT
errors and make adjustments or claims.
may examine the quantum of the claim, including the requirement to
apply revised partial exemption and capital goods scheme calculations
to ensure claims are accurate.
Making a claim
All claims must be made in writing, stating the amount of the
claim and the method by which it has been calculated by reference to
documentary evidence in the possession of the claimant. Claims must
also be broken down by prescribed accounting period.
Only the person who accounted for the ‘VAT’ is entitled to
make a claim to recover it.
All claimants must confirm that their claims:
- are accurate
- this applies only to supplies of services that are closely
linked and essential to sport and on which VAT has been paid
- have been adjusted in accordance with VAT Information Sheet
08/17: claims for over payment made by local councils
Any other supplies or claims made on a different basis must be
excluded from these arrangements.
All claims must be sent to:
All claims will be subject to the 4-year time limit in section
80(4) of the VAT
Local authorities with over declarations of output tax within
certain monetary limits may wish to correct any errors on their VAT returns under
regulation 34 of the VAT
Regulations 1995 rather than submit a formal claim under section 80 VATA 1994 to HMRC. However,
in doing so they would not receive any interest. Further information on
the monetary limits and which returns may be adjusted is available in VAT Notice 700/45: How
to correct VAT
errors and make adjustments and claims.
In circumstances where local authorities have not taken due
care in submitting valid claims, they may be charged a penalty in
relation to prescribed accounting periods starting on or after 1 April
2008, where the return due date is 1 April 2009 or later. They may
therefore incur a penalty if, as a result of a failure to take
reasonable care, their VAT
return shows either too little tax due or a repayment that is too large.
About the Author
© Crown Copyright 2017.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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