HMRC Publishes New Briefings for VAT on Sporting Facilities

...as to their approach in respect of VAT on the provision of sporting activities by local authorities, the London Borough of Ealing's ECJ victory. This is considered further below.

The Ealing Case

In this case, the ECJ found that the UK had incorrectly excluded local authorities from the exemption for the provision of sporting facilities afforded to other not-for-profits. The court decided that any such restriction had to be applied to both public bodies as well as private non-profit-making bodies providing sporting facilities, otherwise it would offend the VAT principle against distortion of competition. It followed that local authorities were entitled to treat those supplies as exempt from VAT.

HMRC Briefing

HMRC have accepted that this decision means that local authorities are now entitled to charge VAT on supplies of sporting facilities (provided that they do so on a consistent basis). They also accept that the authorities may recover any net over-declarations they have made as a result of having treated the supplies as taxable rather than exempt. HMRC will now 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 the London Borough of Ealing case on a consistent basis
  
  
• subject to satisfactory verification of the amounts claimed
  
  

Where that amount results in an interim net payment to the local authority, then that amount will be credited.

It is important to note that this exemption only applies where sporting services are made by the local authority in its own right as a principal. It would not apply to any supplies made by the local authority to a body providing contracted out services such as management services or rental of facilities, or a body contracted out to supply sporting services to individuals in its own right, as is often the case.

Immediate Action Points

Local authorities are directed to the HMRC announcements which contain details as to how to make claims and to compute the amount of any such claim:

• VAT Information Sheet 08/17: claims by local authorities for overpaid VAT on supplies of sporting services
  
  
• Revenue and Customs Brief 6 (2017): VAT – treatment of sports facilities by local councils
  
  

HMRC are considering cases where authorities have already made 'protective' claims and any future claims made on the basis set out in the guidance.

Strategic Planning is Required

Following this announcement, local authorities who provide such services will need to consider whether they should now opt to treat supplies of sporting services as exempt or to charge VAT. Since HMRC acknowledge that they have been incorrectly applying VAT law, authorities who have not made protective claims may now be able to reclaim overpaid VAT. There is a 4 year cap on claims, so this possibility should be looked at immediately. This may be a complex issue, since this would in effect convert a historic taxable supply into an exempt supply which potentially could affect the amount of VAT an authority can recover or it's partial exemption position. Advice should therefore be sought to assess the impact; which will differ from authority to authority.

Furthermore, as mentioned above, many local authorities contract out their sports services to other not for profit providers or sports trusts. These arrangements may be working well but in light of the VAT change, and changes to business rates, there may be merit in examining whether they continue to be good value and authorities might now wish to consider providing these services directly. As well as any tax considerations, contract terms with providers will need to be considered carefully before contracting parties are contacted.