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.

Useful guides on this topic

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Reclaims and unjust enrichment
When can VAT reclaims be made? What are the time limits? What is unjust enrichment? Why might unjust enrichment prevent HMRC making VAT repayments? 

Starting in business: VAT
One of the first decisions to make when starting in business is whether or not you should register for VAT.  Am I running a business for VAT purposes and if so, when do I register?

External links

Revenue and Customs Brief 3 (2023): Changes to VAT treatment of local authority leisure services 

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