HMRC internal manual

VAT Government and Public Bodies

Other local authority activities: contracted out leisure services: memorandum of understanding paragraphs 1 & 2

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See also VATGPB8510.

1. Introduction

This memorandum of understanding sets out how VAT is to be applied to the various supplies that can arise in the provision of local authority leisure services. The contents have been jointly agreed by HM Revenue & Customs and CIPFA. The primary purpose is to identify the types of supply that will normally be encountered and to confirm their correct VAT treatment. It should be noted, however, that the contents will be subject to review from time to time to reflect changing commercial practice and any VAT Tribunal or Court decisions in this area of the tax.

2. Background

2.1 Local authorities may be involved in the provision of leisure services in a number of ways:

  • by a direct service organisation (DSO) within the local authority’s own leisure services department;
  • through a non-profit distributing organisation (NPDO), for example a charitable trust or industrial and provident society, in which the authority may have a degree of representation;
  • through a wholly commercial independently owned “for profit” leisure management contractor.

2.2 In the case of a DSO, all supplies continue to be made by the local authority and the VAT accounting position is as described at paragraph 5.1 below. However, where the leisure facilities have been developed, owned and operated by the local authority, and the authority then agrees with an NPDO or commercial operator that it will take over the operation of the leisure facilities subject to the authority’s conditions, this process is known as “contracting out”. The various arrangements that flow from the contracting out process can give rise to a number of potential supplies for VAT purposes.

For … go to … For … go to …
paragraph 3 VATGPB8530 paragraph 4.1 to 4.6 VATGPB8540
paragraph 4.7 VATGPB8550 paragraphs 5 and 6 VATGPB8560