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HM Revenue and Customs Brief 13/09


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Issued 19 March 2009

VAT: Leisure Trusts providing all-inclusive membership schemes

The issue

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 [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. 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.

Revised Approach

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 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 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 periods.

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.

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© Crown Copyright 2009.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.

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Article Published/Sorted/Amended on Scopulus 2009-03-23 09:24:25 in Tax Articles

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