VAT “OPT OUT” Announcement Sporting Services provided by Local Authorities
January 2018 has seen the New Year start with some clarity for our local authority clients as HMRC have released their guidance note on the application of the European Court Judgement from the Ealing London Borough Council case (Ealing).
This guidance is to be welcomed, particularly by those councils considering whether to retain their leisure services provision within the council or to pursue an Alternative Delivery Model (ADM) utilizing either a Commercial or a Charitable Trust vehicle. To date there was an unavoidable level of “crystal ball” gazing having to be applied to financial modelling to present for cabinet consideration of the various approaches under discussion.
Some local authorities have already submitted protective claims following the Ealing case – that their supplies of sporting services to individuals for the purposes of taking part in a sporting activity – should have been a VAT Exempt supply. Where such existing claims have yet to be paid HMRC have confirmed that subject:
- to satisfactory verification and
- the council having asserted that they will apply the Sporting Exemption on a CONSISTENT basis
- refunds for Over Declared Tax relating will be processed.
It is clearly the intention that the decision, to apply the VAT Exemption on sporting services supplied to individuals by local authorities, is not to be done on a “pick and mix” basis. If a council applies the VAT Exemption liability on a retrospective basis they must also do so going forward.
Opting for Exemption from a Current Date?
However, there is no commentary in the notices as to the implication where a council decides not to apply the VAT Exemption retrospectively but chooses to opt for the VAT Exemption from a current date. The language relating to a consistency of approach appears in reference to situations where a council decides to progress its existing retrospective claim for VAT Exemption or to make a new claim covering a retrospective period using the Exemption.
It will be important to establish whether the phrase “consistent basis” is therefore to be taken as a mandatory one in terms of any new decision to apply VAT Exemption from a current date that by its nature would imply a retrospective application of the Exemption over the previous four years.
Retrospective VAT Claims Already Submitted
HMRC are requesting that existing claimants provide a timeline of their claims and subsequent appeals for verification by HMRC.
In addition, retrospective claims will only be dealt with where they relate to the VAT Exemption applying to charges to “individuals for the playing of sport”.
Some councils are progressing separate claims in respect of their sporting activities being a part of their statutory non-business activities and HMRC clearly wish to differentiate these claims from the Exemption basis that this notice addresses.
General Claim Conditions:
Any claim, whether already made or where a council chooses now to make a new retrospective claim, must meet the following conditions in that it must:
- state the amount of the claim, specifying the individual period to which it relates,
- use the actual figures for each period both for overpaid output tax and, where applicable, overclaimed input tax,
- detail the method of the claim supported by documentary evidence in the possession of the claimant,
- contain confirmation from the claimant that the claim is:
- applies only to the relevant sporting services to individuals and are ones on which VAT had been paid incorrectly,
- are net of any over claimed input tax following the recalculation of any partial exemption calculation and capital goods schemes adjustments triggered by exceeding the 5% “insignificant” input tax level.
Check for Adjustments required:
A final condition for any refund claim is to ensure whether an adjustment is required under sections 80(2A) and 81(3) of the VATA 1994 and section 130 of the Finance Act 2008 which covers any outstanding tax liability (assessments, penalties, interest or surcharges) owed to HMRC whether from VAT or any other tax. These would also need to be offset against the retrospective claim figure.
New claims submitted from a current date will be restricted to the 4-year time limit imposed under section 80(4) VATA 1994.
What Supplies are not Affected?
- Sporting Services supplied which do not meet the “supplied to an individual” definition. Supplies to corporate bodies and unincorporated associations CAN be treated as VAT Exempt supplies to individuals provided that the true beneficiaries of the services are individuals taking part in playing the sport.
- Coaching Sessions – these could, of course, fall as VAT Exempt under the provision of education where there is tuition provided.
- Sports Lets – again these could be covered under the series of lets conditions through the land and property provisions but if not, they are excluded from this sporting services VAT Exemption.
- Other Non-Sporting Incomes areas:
- Sporting goods
- General equipment – water bottles, hair accessories etc
- Vending Machine items
Next Step - Consider the Impact:
Clearly this initial clarification is very welcome and will move the position of retrospective claims already made, forward. Checks should be done on the accuracy of claims submitted to date, especially where estimates have been used or claims submitted for longer periods as a single amount.
For councils considering submitting a new retrospective claim then the issue of applying a VAT Exemption treatment consistently over future periods needs a sense check especially in the context of likely levels of capital or major revenue expenditure in any areas where VAT Exempt income is being generated.
Each council will have very different levels of Exempt income areas as well as spending plans. Some councils will have a greater room for movement within their 5% Exempt input tax levels than others who are already very close to breaching that level.
There is no general guidance other than to ensure that the impact of opting for VAT Exemption on this income area is fully considered on a look forward as well as a look back basis. Clarification of the impact of not making a retrospective claim but deciding from a current or future date to opt for the VAT Exemption is also a point that needs addressing in our view.
Another positive for councils under pressure to decide in the current financial year on the ADM to utilize for the provision of their leisure services is that now the VAT impact on the financial modelling can achieve more certainty.
2018 has leapt off the starting blocks then from the VAT perspective (sorry) – as the year progresses your Centurion Team of VAT Specialists remain on hand to help guide and inform the VAT processes within your organization. We look forward to catching up at our VAT Forums and Training events throughout the year. Our VAT Helpline services and VAT Management Programme help in that way but we’re also only ever a phone call or an email away when you need some VAT support and are also delighted to be included on VAT tenders to ensure you really are accessing the most expert and value for money VAT services available.
HMRC Guidance Notes: