Claims by local authorities for overpaid VAT on supplies of sporting services (VAT information sheet 08/17)

This information sheet is about certain supplies of sporting services made by local authorities that can be treated as exempt from VAT.

Purpose of this information sheet

What this information is about

Following the decision of the Court of Justice for the European Union (CJEU) in London Borough of Ealing, HMRC accepts that certain supplies of sporting services made by local authorities can be treated as exempt from VAT.

The reason this information sheet been produced

The claims relate to VAT incorrectly charged by local authorities on supplies of closely linked and essential services to sport to individuals taking part in that sport. This information sheet highlights certain issues which apply equally to claims submitted before or after the CJEU’s decision in London borough of Ealing, which was released on 13 July 2017. This information sheet should be read with the Revenue and Customs Brief 6 (2017): VAT – treatment of sports facilities by local councils.

Who this information sheet is for

The London Borough of Ealing decision only concerns local authorities and other public bodies directly providing sports facilities to paying members of the public as part of their business activities. It doesn’t apply to other bodies such as trusts or companies under contracting out arrangements, as they’re already eligible for exemption if they’re non-profit-making bodies and meet the other criteria set out in VAT Notice 701/45: sport. This information sheet should be read by any local authority that has already made a claim for overpaid VAT to HMRC, or is now considering making a claim. Claimants may find they need to take action as a result of the issues identified in this information sheet.

What you need to do if you’ve already made a claim

In the first instance, you should refer to the guidance in Revenue and Customs Brief 6 (2017): VAT – treatment of sports facilities by local councils. Where your existing claim is still open, or it hasn’t yet been considered by HMRC, you should now review your claim based on the guidance contained in this information sheet. You should then make any necessary adjustments before deciding how and whether to proceed with the claim.

To make sure that all claims are dealt with correctly and appropriately, claimants who wish to proceed with their current claims are asked to provide a timeline of their claims and subsequent appeals so that HMRC can cross-check these to the details it already holds.

HMRC’s approach to claims made on an alternative basis

HMRC will only process the claims made on the basis that supplies made are exempt supplies in the course of the local authorities business. Where the claims are subject to an appeal to an independent VAT Tribunal, HMRC will be prepared to process eligible claims and make an interim payment pending resolution of other matters covered by the appeal.

Submitting a new claim

New claims must only be submitted after you’ve read this information sheet in its entirety and fully considered the effects on your claim. This applies equally to claimants who haven’t previously submitted any claims and existing claimants who now wish to submit a new claim after following the guidance in the Revenue and Customs Brief 6 (2017): VAT – treatment of sports facilities by local councils. All claims will be subject to the 4 year time limit in section 80(4) of the VAT Act 1994.

General conditions which apply to all claims

Eligibility to make a claim

All local authorities can make a claim.

Calculating figures for each VAT period

All claims must clearly:

  • specify each individual VAT period that they relate to
  • use the actual figures for each period both for overpaid output tax and, where it applies, overclaimed input tax

HMRC won’t normally accept claims where figures are combined into one period, or claims where a global figure is used which is apportioned pro rata across 4 periods or more. Where claimants have considerable difficulty in obtaining records for earlier periods, HMRC will consider each case on an individual basis.

Consistency of VAT treatment

HMRC expects councils to account for VAT on a consistent basis. This means that where councils have opted to make a claim for exemption for past periods, they will be expected to continue to exempt supplies in subsequent periods. Claims won’t be accepted where councils have proceeded on an inconsistent basis.

Calculation of overpaid VAT

The sporting exemption only covers supplies made to individuals participating in a sporting activity. Guidance on when supplies are made to individuals is given in paragraph 5.1. The net over-declarations are calculated after deducting from the over declared output tax, any input tax wrongly claimed by prescribed accounting period (VAT return) on the assumption that the supplies in question were taxable and not exempt, unless that input tax is treated as insignificant under paragraph 8.2 of VAT Notice 749: local authorities and similar bodies.

Contracting out arrangements

The exemption only applies where sporting services are made by the local authority in its own right as a principal. It doesn’t apply to any supplies made to the body providing contracted out services such as management services or rental of facilities, or a body contracted out to supply sporting services to individuals in its own right. The contractual arrangements entered into by local authorities can be complex and so the liability of services will depend on the exact nature of those arrangements entered into and the particular services supplied.

Other supplies

Supplies made to individuals taking part in sport

An ‘individual’ is defined as a person who actually takes part in sporting activity but this can include corporate persons and unincorporated associations, provided that the true beneficiaries of the services are individuals taking part in sport see paragraph 3.4.1 of VAT Notice 701/45: sport. Situations may arise where an unincorporated society purchases sporting services on behalf of its members. In such cases, HMRC considers that to be a supply to the individual members of the society, rather than to the unincorporated society itself.

Coaching sessions

Coaching carried out by a local authority isn’t a sporting supply, although this could qualify as exempt education where tuition is led and directed rather than merely supervised. Charges for such services should be excluded from any claim made.

Sports lets

The provision of sports lets isn’t covered by the exemption for sporting services and charges for such services should be excluded from any claim made see VAT Notice 742: land and property.

Catering and other non-sporting services

Any other income received by a local authority which isn’t for the purposes of allowing an individual to participate in a sporting activity isn’t affected by the change in legislation and so there is no change to the VAT treatment. For example income from supplies of:

  • catering
  • adult or children’s clothing
  • water bottles
  • sauna facilities
  • sporting goods
  • items from vending machines

Calculation of VAT recoverable on costs incurred

Where VAT has been overpaid on fees which are now considered to qualify for exemption, there could be a substantial effect on the amount of VAT a local authority is able to recover on the costs it has incurred (input tax). In particular, it may result in a local authority breaching the 5% test for insignificant exempt input tax, requiring it to make a partial exemption restriction. HMRC expects all claimants to have considered their input tax position and to have adjusted their claims accordingly to take into account any input tax which is no longer recoverable.

Sporting facility now used wholly in making exempt supplies

If the sporting facility is now used wholly in making exempt supplies (for example, in allowing individuals to participate in a sporting activity) then this will affect the claimant’s partial exemption calculations. Any input tax incurred on costs that have a direct and immediate link only to the facility itself is no longer recoverable. If such input tax has previously been recovered because it wasn’t considered to relate to exempt supplies, this should now be restricted unless it falls under the insignificant input tax rules.

When attributing input tax, it’s the direct and immediate links between costs and taxable or exempt supplies that decide attribution. The mere existence of taxable revenue streams doesn’t make costs residual.

Sporting facility used for making both taxable and exempt supplies

There may be situations where the sporting facility is still used to make some taxable supplies, in addition to exempt supplies. In such cases, any input tax incurred on costs that are directly and immediately linked to both the taxable and exempt supplies is residual input tax for the purposes of a partial exemption calculation. This input tax should be restricted on the basis of a partial exemption method, for example one using the proportion of exempt income to total income generated by the sports facility.

However, the taxable element of the supply in such a case clearly has no direct and immediate link to the use of the sporting facility and so doesn’t in any way increase the taxable use of that facility.

Effect on Capital Goods Scheme calculations

Where the recoverable proportion of residual input tax has been affected, there may also be an effect on VAT recovered on assets falling within the Capital Goods Scheme (CGS). The CGS applies to capital expenditure on land, buildings and civil engineering works of a value of £250,000 or more (VAT exclusive) which was subject to VAT at the standard or reduced rate. Civil engineering work should be given its everyday meaning and includes such items as golf courses and running tracks. Capital expenditure includes:

  • an interest supplied to an owner in land, a building, part of a building, or a civil engineering work
  • expenditure incurred in the construction of a building, part of a building, or a civil engineering work
  • alterations, extensions and annexes to buildings and (since 1 January 2011) civil engineering works
  • expenditure incurred in the course of refurbishing or fitting out a building or (since 1 January 2011) a civil engineering work

The CGS requires adjustments to be made to the initial amount of VAT claimed to reflect the differences in the use of capital items over a number of years. If the extent to which you use an item in making exempt supplies has increased or decreased compared to your initial use, you’ll have to make an adjustment. More detailed information on this is given in VAT Notice 706/2: Capital Goods Scheme.

Other adjustments you may need to make

When you’re satisfied that you’ve claimed for the correct periods and that you’ve correctly calculated overpaid output tax as well as made any necessary input tax adjustments, you may need to consider if a further adjustment is required based on HMRC applying the set-offs under sections 80(2A) and 81(3) of the VAT Act 1994 and section 130 of the Finance Act 2008. This means, where you have any outstanding tax liability, for example, you’ve failed to pay your tax, assessments, penalties, interest or surcharges, then you must reduce your claim accordingly to take these outstanding debts into account. This applies irrespective of whether the debt is for VAT or any other tax.

Next actions

When you’ve fully considered the contents of this information sheet, you should follow the guidance in Revenue and Customs Brief 6 (2017): VAT – treatment of sports facilities by local councils.

HMRC will meet eligible claims in full provided that all the necessary conditions are met. You should be aware that HMRC still reserves the right to examine all claims for accuracy and to make sure that any necessary amendments have been made including those referred to in this information sheet.

Inaccurate claims and penalties

All claimants should carefully consider the contents of this information sheet and determine what the implications are on their claims. For existing claimants, this means that they may need to adjust their claim accordingly. New claimants should not submit their claims without first making sure that their claim is accurate and fully in accordance with the requirements set out in this information sheet. Should a claimant proceed with an existing claim or submit a new claim either of which is subsequently found to be inaccurate, that claimant may be liable to a penalty.

Further information

More information can be found at:

If you have any queries contact the VAT general enquiries helpline.

Published 29 December 2017