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HMRC internal manual

VAT Business/Non-Business Manual

HM Revenue & Customs
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Clubs and associations: shares, loans, bonds and debentures


Shares, loans, bonds and debentures are all methods adopted by clubs to raise extra finances from their members or prospective members. These methods of raising finance are becoming increasingly popular, particularly with sporting clubs.

For example the increasing demand for golf has led to more golf clubs being formed. Many of these will try to combine the raising of finance with the provision of membership benefits. The significance of shares, loans, bonds, and debentures is that, because clubs often link a supply of membership benefits to them, they can qualify as other consideration for the purposes of section 94(2)(a) of the VAT Act 1994.

When a body has adopted one of these methods to raise funds you should consider whether there has been a linked supply of benefits. Often standard-rated membership benefits may be attached to:

  • the issue of shares, debentures or bonds by clubs to raise extra finances; this is not a supply for VAT purposes see VAT Finance Guidance; or
  • a supply of existing shares, debentures or bonds, this is an exempt supply.

It may be argued that output tax is not due because:

  • the transaction is not a supply for VAT purposes or exempt; or
  • there are both exempt and standard-rated supplies but the standard-rated element can be ignored on de minimis grounds. This is because it was only an inducement to persuade people to take up the exempt supply and any benefits are merely incidental to the exempt supply.

You will need to think about these arguments in three stages:

  • first, consider whether or not there is a single supply, either standard-rated or exempt; then, if you conclude that there is a mixed supply
  • consider whether either element can be disregarded; and finally
  • consider whether the standard-rated benefits are only being granted as an inducement to persuade people to take up the exempt supply.

The guidance in this manual follows this three stage approach. It refers to tribunal decisions where different supply situations exist.

In VBNB60450 you will find details of ten example situations. If you look at this page and that one together you can view a wide variety of situations. You should be able to decide which is appropriate to your circumstances.

Single supplies

Payments may sometimes be expressed as being for shares or bonds when in fact there may be no security at all. Shares, for example, normally give the holder certain rights upon dissolution of a company, carry voting rights and are freely transferable.

Although not every one of these rights may accrue to a holder in every case, for instance voting rights are often excluded, there may come a point where what is nominally a share may be so far removed from the definition of a share purposes that only standard-rated supplies are involved.

One such case was Southchurch Workingmen’s Club and Institute Ltd where both the share and the subscription were taxable. See VBNB75940.

In contrast it may be that there is clearly an exempt supply. The question then is whether that exempt supply stops there being a standard-rated supply as well.

To answer this question you will need to work out exactly what supplies are being offered to potential shareholders. To do this you should look at the relevant prospectus where one has been issued. Two tribunals have considered this issue. These are Court Barton Property Plc and Oldbus Ltd (see VBNB75940). Please note that HMRC regards the Oldbus decision as applying only to cases with identical facts.

There is only an exempt supply if both the following conditions are satisfied:

  • members are completely free to decide whether or not to purchase existing shares; and
  • share purchasers receive no preferential treatment. Examples of preferential treatment may include reduced subscriptions or a supply of facilities or advantages which are only available to purchasers.

It is possible that the money paid for shares is only consideration for those exempt shares. However, a requirement that members acquire shares can make their acquisition non-monetary consideration for taxable membership supplies (see paragraph 7.4 of V1-12 Valuation).

Mixed supplies

If you have established that two supply elements are involved you must now consider whether or not either supply is sufficiently minimal to be disregarded for VAT purposes. The important question is what has actually been supplied for the payment.

There is a body of authority for this approach. See British Railways Board, Rothley Park Golf Club and Dyrham Park Country Club Ltd at VBNB75940.

HMRC does not accept the argument that the supply is:

  • primarily an exempt security; and
  • the purchasers’ only motives in acquiring the items are to participate in an investment venture.

The decision in Hurlingham Club may be quoted to support that argument. However, the thinking behind this decision is contradictory. At one stage it seems to be based upon what was in the subscribers’ minds. However, the final two sentences of the judgment point towards an objective analysis of the supply.

HMRC refutes this argument because of the decisions in British Railways Board, Rothley Park Golf Club and Dyrham Park Country Club Ltd.

VBNB60450 provides further examples of mixed supplies. It explains how to identify the consideration and how to value the different supply elements.


Whether or not the standard-rated supply is only being offered to induce people to obtain an exempt supply of finance is irrelevant. You need to think about what supplies are made, not why.

HMRC will not accept the argument that the standard rated supply is incidental or de minimis if the exempt supply is a compulsory requirement for obtaining the standard-rated supply.