Sporting Memberships – important VAT decision.

The Court of Justice of the European Union (CJEU) has issued a preliminary ruling regarding the UK’s VAT treatment of sporting supplies, particularly in relation to golf clubs.

Under current UK VAT legislation supplies of services closely linked to, or essential to, sport or physical education of participating individuals, by an eligible body, are exempt; unless the eligible body operates a membership scheme and the recipient is not a member.

This means that supplies to non-members by eligible bodies who have a membership scheme are, currently, standard rated.

Bridport and West Dorset Golf club made a claim to HM Revenue & Customs for approximately £140,000 of overpaid output tax on the non-members’ green fees. The contention being that the UK law prescribing differing VAT treatments for members and non-members green fees was not in line with the European legislation.

HMRC refused to pay the claim and the matter went to Tribunal. At the First Tier Tribunal the taxpayer was successful and HMRC appealed the matter to the Upper Tribunal. The Upper Tribunal then referred several questions to the CJEU.

The CJEU has supported the tax payer. The arguments that HMRC advanced that non-membership fees are additional income or are creating an uncompetitive advantage for eligible body clubs compared to commercial enterprises who have to charge VAT have been dismissed.

Whilst this appears to give relevant eligible bodies grounds to make claims for overdeclared output tax there are additional issues to bear in mind.

  • The increase in exempt income may adversely affect the recovery of VAT on costs incurred by the sporting body, including VAT on capital items. The impact of this should be considered by those affected.
  •  The judgment of the Court specifically refers to the fact that the exemption cannot be restricted in regard of the operation of a golf club. It is not beyond possibility that HMRC will contend that the ruling only applies to golf clubs and not other sports clubs, although this is unlikely.
  •  It is possible that HMRC will refuse to pay refunds in full if it considers that the claimant will be unjustly enriched.

If you would like to discuss this matter further please call or email your usual CVC contact or Dean Carey.