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HMRC internal manual

VAT Business/Non-Business Manual

VAT registration scheme for racehorse owners: agreement with the British Horseracing Authority (January 1998)

The terms of the 1998 Memorandum of Understanding with what was then known as the British Horseracing Board are as follows.

  1. The terms of the previous memorandum of 16 March 1993 between the Thoroughbred Horseracing and Breeding Industry and HM Customs and Excise will continue to apply for those owners who were registered for VAT before 1 January 1998.

Background

  1. The VAT Registration Scheme for Racehorse Owners, “The Scheme”, was introduced on 16 March 1993 following representations from all sections of the Racing Industry. In particular, new proposals put forward by the Jockey Club in connection with sponsorship, appearance money and prize money enabled Customs to recognise that persons racing horses are intending to make taxable supplies and are subject to VAT registration.

  2. The Scheme was introduced on the understanding it would be reviewed in its fourth year of operation. That review has now been completed and it is agreed. The Scheme will continue but with some modifications to be effective from 1 January 1998.

New arrangements

  1. The new arrangements, effective from 1 January 1998 are:

(a) Owners applying for registration must have a sponsorship agreement registered at Weatherbys, or be able to demonstrate they have received business income, and will continue to do so from their horseracing activities e.g. appearance money, sponsored number cloths (SNCs). The effective date of registration will normally be the date the declaration on Form D1/D2 is received at Weatherbys.

(b) The sponsorship agreement may be either one payment for participation in one or more races or represent payments over a period of time.

(c) Upon expiry of a sponsorship agreement an owner will be able to remain registered provided they can demonstrate they are actively seeking sponsorship.

(d) If a sponsorship agreement does not cover all an owner’s racehorses they will nevertheless be allowed to include those racehorses not covered within The Scheme registration provided the owner can demonstrate they are actively seeking sponsorship for them.

(e) Owners holding less than 50% share in a racehorse must register for VAT as a partnership, club etc.

  1. With the exception of 4(e) above the new arrangements for registration will not apply to those owners registered for VAT before 1 January 1998 and who hold a sponsorship agreement or can show they are continuing actively to seek sponsorship. However, if an owner fails to meet these requirements their registration may be cancelled.

Breeders

  1. Customs will continue to require or allow VAT registration where a business of breeding horses for sale exists. Customs accept that where breeders engage in racing activities with the purpose of enhancing the value of their stock and/or their business, these activities are by way of business. For these purposes stock means colts, fillies and home-bred geldings.

  2. Breeders who meet these conditions will be able to claim all tax incurred as input tax in accordance with the normal rules. Output tax will become due on the full amount realised on the sale of all stock. However, no output tax will be due on the transfer of stock to training if the transferor is registered for VAT.

  3. Breeders who own racehorses on their own account, or with others, for racing purposes only may not recover tax incurred under the above. However, they may qualify to do so under the arrangements for owners outlined in paragraphs 4, 16, 17, 18 and 19.

Trainers

  1. Customs will continue to require or allow VAT registration where a business exists of providing training services to owners. Where racehorses are owned by the trainer and also trained by him, and providing the number are not disproportionate to the training activity, any related costs will be regarded as business expenditure for VAT purposes.

  2. Trainers who own racehorses on their own account, or with others, and which are not trained by them may not recover tax incurred under the above. However, they may qualify to do so under the arrangements for owners outlined in paragraphs 4, 16, 17, 18 and 19.

Dealers

  1. Persons engaged in the purchase and sale of horses in the course and furtherance of a business will continue to be regarded as liable or eligible for VAT registration. The racing, for business purposes, of racehorses held as trading stock by a VAT registered dealer, is accepted as part of the trading activity whilst the stock remains available for sale, and any tax incurred can be claimed as input tax in accordance with the normal rules.

  2. Dealers who purchase racehorses on their own account, or with others for racing purposes only, may not recover tax incurred under the above. However, they may qualify to do so under the arrangements for owners outlined in paragraphs 4, 16, 17, 18 and 19.

Company owners

  1. Customs will continue to examine the claims by company owners that racehorses have been purchased for advertising their own businesses against a number of criteria. If they are satisfied that there is a business use and purpose any tax incurred may be recovered as input tax in accordance with the normal rules.

  2. Companies that own racehorses on their own account for racing purposes only may not recover tax incurred under the above. However, they may qualify to do so under the arrangements for owners outlined in paragraphs 4, 16, 17, 18 and 19.

  3. Companies that are racing companies set up specifically to acquire racehorses fall to be treated under the arrangements outlined in Notice 700/67.

The Scheme conditions

  1. Owners will have to complete a declaration confirming they meet the conditions for VAT registration as set out in paragraph 4 above. The declaration will be certified by Weatherbys to confirm the applicant is registered under the Orders and Rules of Racing as an owner, and has in place a sponsorship agreement. 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. Where a sponsorship agreement is not held but the owner is requesting registration because they have received business (taxable) income e.g. appearance money, sponsored number cloths (SNCs) from their horseracing activities full details should be sent with the application form (VAT 1).

  2. Owners whose application for registration has been accepted, and those whose racing activities are included within an existing registration, will be subject to the normal rules that apply to new registrations.

  3. Owners will be entitled to recover as input tax the tax incurred on supplies used for the purposes of their business activities subject to the normal rules. Output tax will be due on income received from sponsorship, appearance money, prize money (excluding sweepstake element) and the sale of racehorses. Output tax will also become payable on racehorses diverted to non-business use when the tax should be calculated on the current market value.

  4. Owners registered under The Scheme will be subject to normal periodic visits for VAT control purposes and will have to show they meet the conditions of The Scheme. 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 Tribunals.

Scheme review

  1. Customs will review the operation of The Scheme in consultation with the British Horseracing Board and other trade bodies during 2001/2 to access whether the levels of business income available to owners justifies them continuing to recover in full the VAT incurred on their racehorse purchases and training and general up-keep expenses. If it transpires The Scheme is to be withdrawn all registrations accepted under its terms will be cancelled from a date no earlier than three months thereafter. Any other significant changes to The Scheme will be implemented from a date to be agreed between the parties to this memorandum.

  2. If The Scheme is withdrawn Customs will not require a refund of input tax claimed unless, in the case of particular owners, it is clear that reasonable efforts were not made to seek business income from sponsorship. Also no output tax will be due on stock and assets held at the date of de-registration.

  3. In the event of The Scheme being discontinued individual owners who consider that they have carried on their activities, and will continue to do so, in a businesslike way may ask to retain their registration. In this respect the normal rules will require each registration, and application for registration, to be decided on its own merits with owners having to demonstrate individually that they have a business intention.