HMRC have published Revenue and Customs Brief 3 (2023) ‘Changes to VAT treatment of local authority leisure services’. The supply of leisure services by local authorities to members of the public may now be treated as non-business.
The treatment of local authorities as undertaking a business activity where they provide leisure services to members of the public was recently challenged by a number of local authorities.
This historic treatment was based on the understanding that when local authorities provide leisure services they are not acting as a public authority.
- A local authority acts as a public authority when they are carrying out their statutory public interest activities for the service of the community.
Cases, which included HMRC v Chelmsford City Council [2022] UKUT 00149, found that local authorities' leisure services are provided under a statutory framework and can be treated as non-business for VAT purposes.
- Before a public body can treat a supply as non-business, it must be shown that this treatment would not significantly affect competition.
- HMRC have conducted an analysis of the leisure services sector and found that allowing local authorities to treat their supplies of leisure services as non-business would not significantly affect competition.
Local authorities that provide in-house leisure services to members of the public currently treat these supplies as business activities for VAT purposes and either charge VAT at the standard rate or apply the exemption.
- This position can now be revisited and the non-business treatment applied.
- Claims for overpaid output VAT may be submitted to HMRC.
This change does not affect other income received by a local authority, for example from supplies of catering, clothing, water bottles, sporting goods, items from vending machines, car parking and sporting lets or other sporting activities previously treated as exempt.
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External links
Revenue and Customs Brief 3 (2023): Changes to VAT treatment of local authority leisure services
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