VAT exemption and after-school activities

In a recent First Tier Tribunal case ‘Planet Sport (Holdings) Limited’ the Appellant (Planet Sport) appealed against HMRC’s decision to refuse their voluntary disclosure in which they claimed a refund of overpaid VAT of £83,489 on the basis that their outputs were exempt supplies of welfare under Item 9, Group 7, Schedule 9 of VATA 1994.

The Tribunal decided that the after-school activities provided by Planet Sport could not fall within the VAT exemption in Item 9, Group 7, Schedule 9 of VATA 1994:

The supply by –

(a) a charity,

(b) a state-regulated private welfare institution or agency, or

(c) a public body,

of welfare services and of goods supplied in connection with those welfare services.

because Planet Sport was not ‘state regulated’ as defined in Note 8 (“state-regulated” means approved, licensed, registered or exempted from registration by any Minister or other authority pursuant to a provision of a public general Act, other than a provision that is capable of being brought into effect at different times in relation to different local authority areas.”)

OFSTED regulates the schools in which Planet Sport supplies coaches to run after-school activities, as part of this regulation  OFSTED carries out inspections of the schools; while OFSTED did have regard to what Planet Sport was doing it was in the context that the school itself was responsible for the activities taking place. Planet Sport was not itself required to be registered with OFSTED (neither was Planet Sport registered with OFSTED). As a result the Tribunal came to the conclusion that Planet Sport’s supplies of after-school activities did not fall within the welfare exemption because Planet Sport was not itself regulated by OFSTED, and although Planet Sport did contribute to the welfare of pupils this was a by-product of its essential service of sports coaching.

The FTT’s conclusion states:

 28. We have found that Planet Sport was not, as a matter of fact, regulated by OFSTED or by any authority within the meaning of Note 8, and we accept Mr Manknell’s submission that the statutes in question, namely the various Education Acts, regulate the bodies they specify in relation to their activities, but do not regulate the activities in the abstract. Any other conclusion would, aside from departing from the clear wording of the Acts, produce the unworkable result that almost any entity providing services to a school related to its functions would become ‘regulated’ without there being any mechanism for the regulation to take place, to register approvals, or to withdraw them. As the Ulster case illustrates, it may also be difficult to draw the line between what is part and parcel of the school’s core functions and what is supplemental to the performance of them.”

Both HMRC internal guidance VATWELF2090 and Notice 701/2 Welfare para 3.3.1 define ‘state regulated’ as registered with and/or regulated by one of the following regulatory bodies:

  • Care Quality Commission
  • Scottish Commission for Regulation of Care (the Care Commission)
  • Care and Social Inspectorate of Wales
  • Northern Ireland Regulation and Quality Improvement Authority
  • Office for Standards in Education (OFSTED) or
  • any similar regulatory body.

If you provide after-school activities in similar circumstances to Planet Sport and are concerned about the VAT treatment, please contact us.