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HMRC internal manual

VAT Trade Unions and Professional Bodies

Trade unions and professional bodies: Apportionment; retrospective registration claims

Associations entitled to exemption under “Group 9” (like many other clubs and associations) are likely to be making some zero-rated and standard-rated supplies to their members in return for their subscriptions additional to the exempt supplies. In most cases an apportionment of the subscriptions will therefore be required. Full guidance on apportionment can be found in VATVAL03000.

Dealing with retrospective apportionment claims: history

VAT Reliefs Team receive intermittent retrospective apportionment claims from organisations claiming to be “Group 9” bodies on the basis that they have not taken the benefit of zero-rating printed material supplied to members in return for their subscriptions. These claims arise from two circumstances peculiar to the history of this exemption group.

  • Between 1973 and 31 December 1977, subscriptions to trade unions were outside the scope of VAT and trade / professional / vocational associations could choose between taxable and outside-the-scope treatment. The ability to zero-rate certain supplies to members was therefore not a major issue during that period.
  • When the 1989 version of “VAT Leaflet 701/33” was issued in May 1989, the passage stating that traders could zero-rate the element of the subscription attributable to identifiable zero-rated benefits was accidentally omitted. An erratum slip was issued in June 1989, which (appearing separately) drew attention to the possibility of such treatment. It also created an impression that the treatment was something not previously possible.

In fact, the capacity to zero-rate a proportion of the subscription in respect of identifiable zero-rated supplies to members has always been available. Publication of the fact was initially via “Notice 701 VAT: Scope and Coverage”. The 1973 and 1975 versions of the notice, and a 1977 supplement to it, stated that “If any supply falls within the terms of both the Schedule of zero-rated items and the Schedule of exempt items, the supply is zero-rated”. The 1976 and 1979 versions specifically stated that zero-rating took precedence over exemption.

“VAT Notes No 2” of 1983/84 announced the discontinuance of “Notice 701” as of 1 January 1984, and its replacement by “Leaflet 701/33/84”. This leaflet stated that the value of the exempt membership supplies would normally be the full amount of the subscriptions unless these covered supplies unrelated to an organisation’s aims or rights of admission to events for which non-members were charged - in which case the organisation would have to “apportion the subscription and treat as taxable the element of the subscription relating to taxable supplies”. Zero-rated supplies were not mentioned specifically but are, of course, included within the ambit of “taxable supplies”. Replacement of the 1984 leaflet by the 1989 version was announced in “VAT Notes No 1 1989/90” and issue of the erratum slip in “VAT Notes No 2 1989/90”.

Other relevant publications were the 1979, 1981, 1984 and 1986 versions of Public Notice 701/5: Clubs and Associations. This public notice gives guidance on VAT matters affecting clubs and associations more generally but is applicable also to organisations qualifying for exemption under “Group 9”. All versions of this leaflet stated that apportionment in respect of zero-rated supplies to members was possible.

Dealing with retrospective apportionment claims: approach

The foregoing details of past publications have been included because they are relevant when considering an organisation’s claim for retrospective apportionment in respect of zero-rated membership benefits. In considering any such claim, the crucial element will be the extent to which the trader was aware of the availability of zero-rating over the past period being claimed. Some of the details that may be relevant in establishing this are as follows.

  • Was the organisation registered prior to 1 January 1978? If it was, was this because it had exercised the option to be taxable?
  • What was the date of registration?
  • What VAT publications has the organisation received and when?
  • Has the organisation previously been apportioning its subscriptions? If so, upon what basis?
  • Has the organisation received control visits? If so, was the liability of the subscriptions looked at specifically?
  • Has the organisation ever received a written liability ruling about its subscription income from an local VAT office or policy section?
  • Was the organisation (or its controlling officers) ever actually aware that some of the supplies to the membership qualified for zero-rating? If it was, was the decision consciously made not to register or to apply an apportionment that ignored the zero-rated entitlement?

Retrospective registration requests

In addition to retrospective apportionment requests from organisations, you could also receive requests for retrospective registration based upon an organisation calculating that it had actually been making substantial zero-rated supplies over the past period. The above information is also relevant to such registration requests.

Three Policy sections have an interest in these cases:

  • VAT Reliefs Team are primarily responsible for the liabilities of the supplies to members;
  • VAT Principles Team are primarily responsible for apportionment methods; and
  • Registration and Accounting Policy Team is primarily responsible for registration and deregistration matters.