VAT and Green Fees: Straight Down the Middle

Our guest blogger this week is Graham Elliott from Haysmacintyre. He provides advice on all aspects of VAT but also acts extensively for not-for-profit sports organisations.

The release of the Tax Tribunal’s decision in the case of Bridport Golf Club has most certainly positioned HMRC’s ball in the rough, and that of members clubs on the green.  HMRC was defending the honour of the UK legislation covering the EU VAT rule allowing exemption from VAT for certain sports supplies carried out by non-profit bodies.  Bridport (behind which were sitting hundreds of similar clubs) thought that the EU rules allowed a wider definition of the exemption.  It said that fees paid by non-members to go round the course (green fees) were exempt, whereas HMRC said the exemption was limited solely to sporting supplies made to members.

The tribunal decided in favour of exemption for these non-member services. The result is a direct strike at the UK VAT legislation.

The key principle at play here is “fiscal neutrality”.  The gist of this is that the same supplies, when made to different classes of customer, ought nonetheless to be taxed the same in order to preserve a “level putting green”.  HMRC had tried to defend the position by saying that supplies to non-members must be, ipso facto, mere revenue raising activity for the purposes of improving the club’s facilities for the members.  If that were true, it is not exempt under EU law.  And, if not that, that it distorted competition with proprietorial clubs.  Again, that could not be exempt under EU law if the UK had enacted a provision to prevent it, which, said HMRC, was achieved by not extending the exemption to non-members.

The tribunal could not see the logic of these arguments.  The club’s purposes included providing golf to non-members, and 30% of the activity was for non-members.  This could not seriously be regarded as solely to raise revenues.  Nor was it credible to say that taxing non-members assisted in preventing distortion of competition with commercial providers, when such a distortion in any case arose as regards services provided to members.

The next step for HMRC is to consider whether to appeal.  They are likely to appeal but are likely also to lose.  This means that it is worthwhile for any golf club that has not yet submitted a claim on the back of this litigation to do so.  The saving from such a claim would be the VAT accounted for on green fees minus the value of VAT recovered on expenditure which would, as a result, reduce.  Clubs that would lose out (because the VAT recovery they enjoyed as a consequence is worth more than the VAT that would be refunded on their fees) can choose to ignore the result.

Meanwhile, HMRC needs to give serious consideration to changing the UK legislation which is now significantly adrift from what is probably allowable under EU law.  The position regarding sports supplies is now in limbo (although tabloid newspapers would not hesitate to describe it as “chaos”) and needs to be settled again as soon as possible.  However, they have choices under the VAT Directive and we should not assume that this means that the outcome when the legislation changes will be universally popular.

The issue has ramifications beyond golf clubs of course.  Any non-profit club which has members but also sells sports services of any kind to non-members is directly affected.  In fact, it is arguable that the classification of the customer is entirely irrelevant.

A footnote: Sports clubs should not assume from this that the criteria for exempting sports services have now been liberalised in a very general way by the decision.  This is about a specific aspect.  The tight rules concerning profit distribution and “commercial influence” remain intact for the time being.  There is no suggestion that the principle of fiscal neutrality extends to treating different classes of supplier the same for VAT.  The condition of being a non-profit body remains legitimate, and that means that proprietorial providers still have to account for VAT.  This news makes their position even more unequal - a point that will not be lost on HMRC as it considers its next steps.


 

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