Policy paper

Revenue and Customs Brief 18 (2020): VAT liability of school holiday clubs First-tier Tribunal decision

Published 17 November 2020

1. Purpose of this brief

This brief clarifies HMRC’s policy concerning the VAT treatment of school holiday clubs following the First-tier Tribunal’s (FTT) decision of 7 November 2019 in RSR Sports Limited (RSR) (Decision No TC07453).

In particular, it clarifies how other businesses providing similar supplies will be treated. It also invites anyone who considers that they have received an incorrect ruling prior to the decision in RSR to seek a corrected ruling and a refund of any tax incorrectly overpaid.

2. Who this applies to

Organisations that make supplies of school holiday club services and their advisers.

3. Background

RSR provided holiday camp services to parents and their children and argued that these services were exempt from VAT as the provision of welfare during the school holidays.

HMRC refused RSR’s claim for repayment on the basis that holiday camps were activity based and the supply was not one of welfare.

Supplies of welfare services are exempt from VAT under Item 9 of Group 7 of Schedule 9 of Value Added Tax Act 1994. This exemption is subject to the following 2 conditions.

1.The supply is by:

• a charity
• a state-regulated private welfare institution or agency
• a public body

2.The services are welfare services and goods supplied in connection with those welfare services.

Welfare services include those directly connected with the care or protection of children and young persons.

4. What’s covered by the exemption for welfare

In England, state regulated private welfare institutions and agencies are establishments registered with or regulated by the Care Quality Commission (CQC) and Office for Standards in Education (OFSTED).

In Scotland it is the Scottish Commission for the Regulation of Care (The Care Commission).

In Wales it is the Care and Social Services Inspectorate Wales.

In Northern Ireland it is the Northern Ireland Regulation and Quality Improvement Authority.

HMRC Notice 701/2 Welfare, paragraph 2.2.1 explains that the welfare exemption applies to day care services (such as those provided by a nursery, playgroup or after school club), but activity-based clubs such as dance classes are excluded from exemption.

5. The FTT’s decision and HMRC’s revised policy

The conditions set out in section 3 were applied by the FTT who found that:

• RSR was OFSTED registered and the holiday camps were supervised by OFSTED
• the holiday camps included both an activities element and a childcare element
• the activities element was emphasised by RSR in order to make the holiday camp attractive to potential consumers
• the activities at the holiday camps were supervised but there was no coaching or teaching of the relevant skills which differed from the after-school clubs that RSR also provided
• there was a much greater degree of staff qualification in the after school clubs, emphasising the difference between the two

The FTT then considered whether the predominant element of the holiday camps was childcare or activities and concluded that it was the former although the answer was finely balanced.

In this case, the childcare element was not incidental to and subservient to the activities that were being offered to the parents and children.

The case could therefore be distinguished from Sports Academies (Decision No TC05171), a case where the tribunal had held that the activities element predominated.

The important key features were:

• the members of staff were merely supervising activities
• they did not hold any coaching or teaching qualifications
• there was no external standard to which the services were being provided
• the activities were merely an adjunct to the essential service which was childcare

Other providers supplying services can similarly exempt their supplies where the facts demonstrate that they qualify and exhibit the key features set out by the FTT in RSR.

In future, HMRC will not interpret activity-based clubs to include those clubs exhibiting those key features. Such clubs will, therefore, be included within the welfare exemption.

6. Procedure for seeking correction of an incorrect ruling

Requests will be considered as long as there is proper evidence.

After an initial review HMRC reserves the right to ask for more information to ensure that the 2 conditions of state regulation and the predominant element being childcare are fully satisfied.

You’ll need to provide the following:

• evidence that the body is state regulated
• evidence that the protection and care of children is the predominant activity
• whether the staff have teaching or coaching qualifications
• evidence that the staff are acting predominantly as child minders

If you have a current appeal before the FTT please provide any tribunal reference numbers.

If you think you have received an incorrect ruling and would like a written clearance, please use our Non-Statutory Clearance Service.

You should quote reference RCB 18 (2020).

Any business that has accounted for too much VAT may correct this by following the normal error correction procedure. How to correct VAT errors and make adjustments or claims (VAT Notice 700/45) explains this.

It is important to note that such adjustments are subject to a 4-year cap starting from the accounting period in which the error was made.

7. Further Information

You can find more information in VAT Notice 701/2 Welfare services and goods and the VAT Welfare manual.

If you have any questions about these changes please contact VAT: general enquiries.