VAT contrived schemes used to obtain exemptions for sporting or educational training/supplies (Spotlight 22)
Published 5 November 2013
© Crown copyright 2013
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This publication is available at https://www.gov.uk/government/publications/spotlight-22-vat-contrived-non-profit-making-bodies-scheme-to-obtain-exemption-for-sporting-or-educationaltraining-supplies/spotlight-22-vat-contrived-non-profit-making-bodies-scheme-to-obtain-exemption-for-sporting-or-educationaltraining-supplies
Some businesses seek to take advantage of exemptions for VAT that are available where certain sporting and educational training/supplies are provided by a non-profit-making body.
These businesses claim to provide sporting or educational supplies/training via non-profit-making bodies. In reality, the profit on these supplies is removed from the non-profit-making body.
For example, by means of non-VAT-bearing fees charged by an associate of the non-profit-making body. The courts have used the term ‘covert distribution’ for the extraction of profits or surpluses in this way.
HM Revenue and Customs (HMRC) accepts that the exemptions apply to businesses that are genuinely non-profit-making bodies.
HMRC challenges arrangements which involve ‘covert distribution’ through litigation where necessary. HMRC has been very successful in such litigation with the courts up to and including the Court of Appeal, consistently supporting HMRC’s view that these schemes simply do not work.
HMRC strongly advises anyone who has used such a scheme to consider withdrawing from the scheme. By withdrawing and notifying HMRC, people will avoid the costs of litigation and minimise interest on underpaid tax and any penalties that might be applicable.
If you already have an appeal with the tax tribunal in relation to this scheme you will need to notify the tribunal if you wish to withdraw your appeal.
Find more about notifying HMRC of errors on your VAT returns.