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HMRC internal manual

VAT Business/Non-Business Manual

Clubs and associations: apportionment of subscription income



The general rule is that subscriptions are consideration for a package of benefits. The liability will follow that of the various supplies being made. Therefore, you will need to apportion the subscription unless all of these supplies have the same liability.

Our historic view that membership benefits supplied in return for a subscription constitute mixed supplies that need to be apportioned rather than a single supply was taken in the case of The Automobile Association (see VBNB75960). In that case the High Court accepted the AA’s subscription charge was for a mixed supply of their magazine, the key to the AA box insurance and various other services.

However, following the decision in Card Protection Plan (see VBNB75960) we concluded that our previous approach was wrong in law. The subscriptions of a members’ club were usually consideration for a bundle of supplies, each of which is for the better enjoyment of the principal supply, and all the supplies therefore share the same VAT liability.

We did, however, accept that in some cases there were two or more supplies, each of which was an end in its own right. In those cases apportionment was the proper treatment. Where a business had incorrectly treated its supplies as mixed under the old legal understanding, we took no action and we introduced ESC 3.35 to allow non-profit making members’ clubs to continue to do so.

Normally a body will apportion its subscriptions either in relation to the costs that it incurs in making the supplies or in relation to the price at which the supplies are separately available (a market value method). However, here are no fixed rules requiring apportionment by a particular method. Any method is acceptable as long as the end result is fair and reasonable.

Supplies to be disregarded when apportioning

When you apportion a subscription you should only take into account the facilities and advantages that are supplied to members in return for it. There may be benefits which seem to arise from the payment but do not in fact do so. These should be ignored when making the apportionment.

Please look at these examples:

  1. Items free to members and non-members

This is most likely to be in the form of printed material, or admissions to premises for which neither members nor non-members are charged.

These are often provided by charitable or philanthropic bodies. Their presence indicates the performance of non-business activities. Remember that if there is a charge to non-members and a lower one to members the resulting discount will be an advantage for members that should be included when any apportionment is performed.

  1. Items available to members and non-members at the same price

There is no benefit to members if they have to pay the same for a supply as non-members. However, this separate income is taxable in principle, being the consideration for supplies separate from those provided as part of the package of membership benefits. Liability of this separate income will be determined by the liability of the supply being made.

  1. Supplies by third parties

The tribunal in Friends of the Ironbridge Gorge Museum (see VBNB75960) held that section 94(2)(a) of the VAT Act 1994 does not apply to bodies if their members only receive supplies from another body. This decision suggests that anything provided to the members of one body by a second body should also be disregarded when an apportionment is made.

You should look at all the supplies made to members where people join a Friends body and are supplied with benefits by a separate body which the Friends body supports. If some supplies come from each body the Friends body will still be within section 94(2)(a) in respect of the supplies made to members in its own capacity. Supplies from the other body will not be taken into account in any apportionment of the subscriptions.

However, there is a possibility that the supported body may be liable to account for tax on the payments it receives from the Friends body. This is because such payments may actually be the consideration for the supplies made by the supported body to the members of the Friends body. There is no legal requirement for consideration to come from the recipient of a supply.

HMRC staff should report any cases similar to Friends of Ironbridge Gorge to VAT Advisory Team. Once approved by the HMRC line manager the submission should be sent via EF to the VAT Advisory Team in line with the guidance set out in Indirect Tax – Getting advice about VAT and IPT.