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HMRC internal manual

VAT Trade Unions and Professional Bodies

Trade unions and professional bodies: Background and law: UK law - history of the exemption group

Prior to 1 January 1978, the “deemed business” provision applicable to clubs and associations was to be found in “section 45” of the “Finance Act 1972”. Under “sub-section (2)” of that section there were

  • exceptions for trade unions, that were outside the scope of VAT, and
  • exceptions for trade / professional / vocational associations, which had the option of being treated as taxable or outside the scope.

When “Article 13.A.1(l) of the Sixth Directive” (now “Article 132(1)(l) of Directive 2006/112”, see VTUPB1100) was implemented on 1 January 1978, it was no longer possible to retain an option because the article provided for relief by way of exemption. A revised “section 45”, which became “section 47” of the “VAT Act 1983” and is now “section 94” of the “VAT Act 1994”, applied VAT in principle to all clubs and associations, and had no provision taking trade unions outside the scope or giving trade unions an option. Instead, exemption was provided for these bodies in a new exemption group that is now “Group 9” of “Schedule 9” to the “VAT Act 1994”.

It had been anticipated that exemption would not extend to associations of employers and the self-employed because the majority of these had opted to be taxable prior to 1 January 1978. However, as a result of much lobbying and protest from these bodies, the exemption was extended to professional associations and learned societies where membership was directly or necessarily connected with the members’ professions or employments. This extension of the Group still excluded employers and some other influential interest associations, so “Item (d)” was added to the group. This provided exemption for representational bodies on the basis that such bodies performed functions comparable to those of trade unions proper.

The final content of “Group 9” was therefore:

  • trade unions (“Item 1(a)”),
  • professional bodies (“Item 1(b)”),
  • learned societies (“Item 1(c)”) and
  • representational trade associations (“Item 1(d)”).

The bodies defined within “Items 1(b)” to “1(d)” are those of a “trade union nature”, for which “Article 13.A.1(l) of the 6th Directive” (now “Article 132(1)(l) of Directive 2006/112”) required exemption, but which are not “trade unions” proper as defined in “Item 1(a)”.