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HMRC internal manual

VAT Business/Non-Business Manual

VAT registration scheme for racehorse owners: agreement with the Thoroughbred Breeders Association (March 1993)

  1. The terms of the 1993 Memorandum of Understanding are as follows.

  2. VAT registration has always been required for persons dealing in horses and for breeders and trainers where their taxable supplies exceed the registration threshold. However, as racing has been regarded as a non business activity, restrictions have been placed on the amount of tax reclaimable by those businesses which also engage in racing, either by denying input tax itself when incurred for racing purposes and/or through an agreement with the Industry for output tax payment when horses are put to racing.

New arrangements

  1. As a result of representations from all sections of the Thoroughbred Horseracing and Breeding Industry to Ministers and officials, and in response to the proposals put by the Jockey Club on behalf of the Industry, Customs and the Industry are now prepared to move forward together in a number of important areas. In essence, Customs are prepared to respond positively to the Industry’s initiative on sponsorship and appearance money, by recognising that persons racing horses with a view to income from sponsorship, appearance money and prize money are intending to make taxable supplies and are subject to VAT registration under the normal rules. There are also changes in the Customs’ treatment of racing by breeders, trainers and dealers currently registered for VAT which will provide greater opportunity to reclaim VAT incurred by the business.

  2. The new arrangements are:

(a) The Rules of Racing will be amended as necessary to create a framework whereby owners can exploit opportunities for increased income through sponsorship and appearance money to a more commercial level.

(b) Owners whose taxable activities exceed the turnover threshold will be liable for registration, but Customs will also accept applications from owners seeking voluntary VAT registration in respect of their racing activities so long as they have a business intention and they make a declaration to that effect.

(c) Customs will accept that racing of horses by breeders, trainers and dealers can have a genuine purpose and value in promoting the business activities and will no longer regard racing as non business by definition.


  1. Customs will continue to require or allow VAT registration where a business breeding horses for sale exists. Customs are now prepared to accept that, where breeders engage in racing activities with the intention of enhancing the value of their stock and/or the general standing of the business, those activities will be regarded as being by way of business. For these purposes stock means both colts and fillies but not geldings. With regard to colts, Customs would expect the breeder to demonstrate that he is involved or intends to become involved in the production and/or ownership of stallions or stallion shares.

  2. Breeders who meet these conditions will be able to reclaim all input tax in accordance with the normal rules. No liability to output tax will arise on the transfer of stock to training. Output tax will become due, subject to the normal rules, on the full amount realised on the sale of all stock.

  3. Breeders who own horses on their own account for racing purposes may not enjoy deduction of input tax under the above but in future they may qualify to do so under the arrangements for owners outlined in this memorandum in paragraphs 15, 16, 17 and 18.


  1. Customs will continue to require or allow VAT registration where a business exists of providing training services to owners. Customs take the view that, where horses are owned by the trainer and trained by him, providing that the number of such horses is not disproportionate to the main activity, the related costs will be regarded as being business expenditure for VAT purposes.

  2. Trainers who own horses on their own account for racing purposes may not enjoy deduction of input tax under the above but in future they may qualify to do so under the arrangements for owners outlined in this memorandum in paragraphs 15, 16, 17 and 18.


  1. Persons engaged in purchase and sale of horses commercially will continue to be regarded by Customs as liable or eligible for VAT registration. The racing, for business purposes, of horses held as trading stock by a VAT registered dealer will be accepted by Customs as part of the main business activity, whilst that trading stock remains available for sale.

  2. Dealers who purchase horses on their own account for racing purposes may not enjoy deduction of input tax under the above but in future they may qualify to do so under the arrangements for owners outlined in this memorandum in paragraphs 15, 16, 17 and 18.

Company owners

  1. At present, Customs examine the claims of company owners that horses have been purchased for advertising their own products or services against a number of criteria. If they are satisfied that there is business use, input tax may be deducted under the normal VAT rules. These arrangements will of course continue and, if changes to racing do materialise, such companies may have greater scope for deduction of input tax relating to racehorses.

  2. Company owners which are racing companies set up specifically to acquire racehorses would now fall to be considered for VAT registration under the arrangements outlined for owners in paragraphs 15, 16, 17 and 18.


  1. This covers persons who own horses for racing, and breeders, trainers or dealers whose ownership of horses is not regarded as a business activity under the arrangements set out elsewhere in this document.

  2. It is recognised that initiatives being proposed by the Racing Industry to encourage income opportunities from sponsorship and appearance money now provide scope for owners to qualify for registration provided they intend to exploit the opportunities available in a businesslike manner.

  3. Appearance money and sponsorship of racehorses are new to racing; both Customs and the Industry agree that it will take some years for these opportunities to be nurtured and to flourish. Consequently, this could prove a source of difficulty for owners and for Customs’ staff in dealing with applications for VAT registration, and adherence to normal rules might stifle these initiatives. On the basis that owners who intend to pursue their racing activities in a businesslike way are intending traders and are therefore liable to or eligible for VAT registration under the VAT Act 1983 Schedule 1, Customs will introduce a special scheme (The Scheme) which will offer across the board registration to all owners who accept the conditions of The Scheme.

The Scheme conditions

  1. Owners will have to complete a declaration confirming their intention to seek sponsorship, appearance money and prize money and accepting the conditions laid down as part of The Scheme. The declaration will have to be certified by an approved body nominated by the Racing Industry to confirm that the applicant is registered with the Jockey Club as an owner. On receipt of the declaration and VAT registration application form (VAT 1) Customs will register the owner subject only to normal checks on status and completeness.

  2. Owners whose application for registration has been accepted, and those whose racing activities are to be included within an existing registration, will be subject to the normal rules applying to new registrations. Given that the ownership of racehorses has not hitherto been treated as a business activity, input VAT will not be deductible on supplies received before the introduction of The Scheme. This means that input VAT cannot be reclaimed on stocks and assets on hand at the commencement of The Scheme but equally no output VAT need be accounted for on disposal of stock and assets on which input VAT deduction has been denied.

  3. Otherwise owners will be eligible to deduct input VAT on their business activities, subject to the normal rules. Output tax will, of course, have to be accounted for on income e.g. sponsorship, appearance money, prize money (excluding the sweepstake/race entry fee element) and proceeds of sale. Tax will also fall due on horses diverted to non-business use when the tax will be calculated on the lower of cost and current market value.

  4. Owners registered pursuant to The Scheme will be subject to normal periodic visits for VAT control purposes and will have to show that income is still being actively pursued. If, at any time, this is not the case, repayment of input tax claimed may be required, and action taken to cancel the registration. Owners will be able to appeal any such decision to the independent VAT Tribunal.

Scheme review

  1. Customs will review the operation of The Scheme in consultation with the trade bodies concerned during its fourth year to assess whether the levels of income available to the industry as a whole warrant The Scheme’s continuing operation. If it becomes clear that the climate in the Industry has not in fact changed to enable owners generally to exploit the opportunities for income to a business level, The Scheme will be withdrawn and all registrations accepted under its terms will be cancelled from a date no earlier than 3 months thereafter. Customs, however, will not require refund of input tax reclaimed unless, in the case of particular owners, it is clear that reasonable efforts were not made to seek income, nor will the Commissioners require output tax to be accounted for on stock and assets held at the date of deregistration. Individual owners who believe that they have in fact carried on their activities in a businesslike way may ask to have their registration retained.

  2. In the event of The Scheme being discontinued the normal rules would require each application for registration to be decided on its own merits with owners having to demonstrate individually that they have a business intention.