HM Revenue and Customs Brief 13/09
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Issued 19 March 2009
VAT: Leisure Trusts providing all-inclusive membership schemes
HMRC is amending 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 supersedes the advice given in Revenue &
Customs Brief 50/07.
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). Previously, HMRC’s view was that
where a scheme offers, over a period, unlimited use of a variety of
both taxable and exempt facilities, typically in return for a monthly
or annual payment, there is 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  (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
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. So regarded, 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 e.g. 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 still exempt.
If the predominant reason a typical consumer purchases an
all-inclusive package is to make use of standard rated facilities the
single supply is standard rated.
Effects of the change
The effect of this change is that 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
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
your local VAT office.
Making claims or adjustments
The change described should be implemented from 1 April 2009
and there is no requirement to make adjustments in respect of supplies
made prior to this date. However, where a business wishes to make a
claim to HMRC for a repayment of output tax incorrectly accounted for,
they may do so, subject to the conditions set out below, by using one
of the following methods.
Claims for overpaid output tax must be net of any over-claimed
input tax calculated under the partial exemption rules:
Claims can be made either by adjustment to the current VAT
return or by submitting a written claim to HMRC.
An adjustment may be made to your current VAT return, but the
value of the errors must not exceed the greater of either £10,000 or 1
per cent of the box 6 figure on the claimant’s VAT return for the VAT
return period of discovery, subject to an upper limit of £50,000.
Where the errors exceed the limits set out above, a written
claim should be submitted to HMRC (in these cases the errors must not
be corrected through the claimant’s returns).
Details of where to send your claim can be obtained from
update 2 to VAT Notice 700/45 - How to correct VAT errors and make
adjustments or claims from the HM Revenue & Customs National
Advice Service on 0845 010 9000.
All adjustments or claims are limited to a three-year period
or after 1 April 2010 a four-year period (except those that are subject
to the House of Lords decisions in the cases of Michael Fleming (t/a
Bodycraft) -v- HMRC (Fleming) and Condé Nast Publications Ltd -v- HMRC
(Condé Nast) see Business Brief 07/08).
Businesses must be able to produce evidence that they
accounted for VAT in the circumstances described above, and must be
able to substantiate the amount claimed. Any such claims must be
submitted by 31 March 2009. Should a claim not take into account all
errors or all affected accounting periods, then HMRC will seek to
set-off amounts owed for these periods against amounts claimed in other
HMRC may reject all or part of a claim if repayment would
unjustly enrich the claimant. More details on ‘unjust enrichment’ can
be found at part 14 of VAT Notice 700/45 How to correct VAT errors and
make adjustments or claims.
A notification to HMRC that a business intends making a claim in the
future is not a valid claim. All claims for overstated or overpaid VAT
will be dealt with in accordance with our Business Brief 28/04 -
‘Correcting liability errors’.
Where you are in any doubt about the correct treatment please
contact the National Advice Service.
About the Author
© Crown Copyright 2009.
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Article Published/Sorted/Amended on Scopulus 2009-03-23 09:24:25 in Tax Articles