Policy paper

Changes to VAT treatment of local authority leisure services

Published 3 March 2023

© Crown copyright 2023

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This publication is available at https://www.gov.uk/government/publications/revenue-and-customs-brief-3-2023-changes-to-vat-treatment-of-local-authority-leisure-services/changes-to-vat-treatment-of-local-authority-leisure-services

Purpose of this brief

This brief explains a change in the VAT treatment of leisure services provided by local authorities.

Who needs to read this

You should read this brief if you are a local authority.

Background

Local authorities are currently treated as undertaking a business activity if they provide leisure services to members of the public.

This treatment is 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’re carrying out their statutory public interest activities for the service of the community.

This treatment was challenged by a number of local authorities and the matter was considered by the courts.

This litigation has now concluded. The courts have found that local authorities’ leisure services are provided under a statutory framework and can be treated as non-business for VAT purposes.

The relevant cases are:

  • Midlothian Council v HMRC [2020] UKFTT 433 (TC)

  • Mid-Ulster District Council v HMRC [2020] UKFTT 434 (TC)

  • HMRC v Mid-Ulster District Council [2022] UKUT 00197 (TCC)

  • HMRC v Chelmsford City Council [2022] UKUT 00149 (TCC)

Before a public body, such as a local authority, can treat a supply as non-business it must be shown that this treatment would not significantly affect competition.

HMRC has conducted a detailed analysis of the leisure services sector. We have found that allowing local authorities to treat their supplies of leisure services as non-business would not significantly affect competition.

Impact on local authorities

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 their customers VAT at the standard rate

  • apply the exemption

Local authorities can now revisit this position and apply the non-business treatment to their supplies of leisure services. They can also submit claims to HMRC.

If you’ve previously submitted a claim, you need to review and resubmit this with supporting evidence. This is to reduce the delay in authorising repayments.

If you’ve made a claim for overpaid output tax, you must only include the VAT paid in relation to leisure services.

You should send your claim to: lasector.mailbox@hmrc.gov.uk. You should include ‘2023 LA VAT non-business’ in the subject line of your email.

More information

Any other income received by a local authority is not affected by this change. For example, this includes income from supplies of:

  • catering

  • adult or children’s clothing

  • water bottles

  • sporting goods

  • items from vending machines

  • car parking

  • sporting lets or other sporting activities previously treated as exempt

Find more information about how to correct VAT errors and make adjustments or claims (VAT Notice 700/45).

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