Council Leisure Services – Could they be Outside the Scope of VAT?
Everyone will be familiar with the VAT application of an Exemption that local authorities can “opt in” to apply to their leisure services as a result of the Ealing Council case. However, in addition to the VAT Exemption, there has been a “lead” case taken to VAT Tribunal by Chelmsford City Council where the legal arguments have been presented that the provision of leisure services through council run centres should not actually be regarded as a business activity in the first place, effectively be “outside the scope of VAT”. We have seen the “non-business” argument used before on some council service provision – car parking will be one that readily springs to mind – and such cases can and do run for many years through the courts.
The latest news on the Chelmsford City Council case has brought success for the tax payer and the full Tribunal report can be digested here The three core legal arguments were encapsulated in the following:
- Supplies of sporting and leisure activities to members of the public are not “economic activities”, and are therefore outside the scope of VAT;
- Supplies of sporting and leisure activities to members of the public are provided by the Council in its role as a public authority acting under a special legal regime and its not a taxable person in regard to those supplies
- Supplies of sporting and leisure activities to members of the public are provided by the Council in its role as a public authority, and therefore it is not a taxable person again, by virtue of Note 3 Group 10 Sch 9 VAT Act 1994.
However such is the potential impact of any ruling would have in regard these activities as outside the scope of VAT we should expect HMRC to make an appeal and for this matter to progress through the courts. Certainly one to watch out for and it will have ramifications for viability studies on whether to leave leisure services in house or outsource them to a commercial provider - bit of additional crystal ball gazing on financial modelling required.
As ever the VAT specialist team here at Centurion are happy to have a conversation should this issue be of relevance to you – protective appeals should have gone in already by councils but if not we could assist. When VAT support is needed you can contact us at firstname.lastname@example.org
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