Important Update: VAT Exemption on Leisure Services by Councils

We have learnt that HMRC have accepted the ruling from the European Court in the matter of the ability of local authorities to access the VAT Exemption on charges to access leisure services under the Sporting VAT Exemption.

The news, which has been shared by CIPFA, confirms that HMRC has yet to issue any specific written guidance for councils but that the Commissioners are to meet this month. A Revenue Briefing note is to follow.

It would be hoped that HMRC will give thought to how councils may have flexibility to plan for any change in liability of this income stream.

A move from a Standard rated treatment to a VAT Exempt income could bring a windfall income gain for councils as they would no longer have to deduct VAT from the affected leisure services income streams. However, there will be many local authorities who will be concerned that a shift to VAT Exemption for this income will channel more VAT from costs related to this income area and could then breach the limits set to govern VAT recovery in councils.

Whilst local authorities have far more generous partial exemption de minimis limits compared to other sectors, costs on maintaining leisure centres and the VAT on those costs are significant. Any capital spending on new 4 or 5 G pitches or new swimming facilities could easily take a council over their 5% de minimis limit of VAT on Exempt related costs as a percentage of all the VAT they incur.

This could result in a council losing £100k's in VAT recovery in a year. For those authorities contemplating Alternative Delivery Models for Leisure Services it creates the need to revisit its impact on their plans for the future.

This is a significant potential change for the sector and the Guidance Brief from HMRC is much anticipated.