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HMRC internal manual

VAT Government and Public Bodies

Other local authority activities: contracted out leisure services: memorandum of understanding paragraph 3

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paragraphs 1 and 2 VATGPB8520

3.Who is making the supply of the leisure facilities?

3.1 Deciding who is actually making the supplies to the users of the leisure facilities is perhaps the single most important aspect to be established, as the appropriate VAT treatment is dependent on this factor. To answer this question, all the relevant documentation e.g. the invitation to tender, the final contract/agreements, back letters and leases or licences and the operational arrangements that are adopted should be considered, to determine the intentions of the parties.

NPDO contractors

3.2 Where operation of the leisure facilities is to be taken over by an NPDO contractor, it is common practice for the relevant premises to be leased to it by the local authority in return for the payment of a peppercorn rent. Thereafter, the NPDO will act as a principal in making supplies to users of the facilities.

Independent contractors

3.3 An independent contractor will, in most cases, be engaged to run the leisure facilities as a principal. However, there can be instances where the contractor will agree to act as an agent of the authority in running certain facilities. In the past, ambiguous written agreements led to uncertainty over the status of some independent contractors. In many cases, the agreements failed to make clear that it was always intended by both parties for the contractor to act as a principal in making supplies to the general public and other users. To avoid such problems, current agreements should make clear the status of the contractor and fully reflect the arrangements under which the parties are to operate.

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paragraph 4.1 to 4.6 VATGPB8540 paragraph 4.7 VATGPB8550
paragraphs 5 and 6 VATGPB8560