VATGPB8410 - Other local authority activities: sport and leisure: supplies of sporting services

The decisions in the local authority (LA) cases of Chelmsford, Midlothian and MId-Ulster established that when LAs provide sport and leisure activities they do so under a special legal regime, which in principle allows those activities to be treated as non-business. This treatment is dependent on it not causing a significant distortion of competition. A detailed economic analysis of the sector has concluded that where a sports related activity undertaken by a LA could be exempt from VAT as per the ‘London Borough ofEaling’ judgement, or exempt under some other legislative provision that applies to sports and leisure activities, treating it as non-business would not lead to a significant distortion of competition, and therefore such activities can be treated as outside the scope of VAT (non-business).

Supplies that can be treated as non-business activities

In respect of LA supplied sports and leisure services, to be treated as a non-business activity a supply must:

  1. Be capable of being treated as exempt from VAT. Whilst this explicitly includes the sporting services held to be exempt when delivered by a LA following the judgement, other statutory exemptions relating to sports and leisure services may be acceptable, e.g. sporting tuition and sports related education (see VAT Notice 701/45). 
  2. Be the subject of a special legal regime – only activities that a body has a statutory obligation to provide, or must perform in a way that is different to private sector providers, are carried out under a special legal regime. The headline legislation considered by the courts was as follows;
  • In Scotland - Local Government and Planning (Scotland) Act 1982, section 14, combined with Local Government in Scotland Act 2003, section 1
  • In Northern Ireland - Northern Ireland Act 1998, section 75, and Recreation and Youth Service (Northern Ireland) Order 1986. Article 10
  • In England and Wales - Local Government (Miscellaneous Provisions) Act 1976 [LGMPA], section 19, combined with other statutory or regulatory constraints that impinge upon how the activity is performed, and with which the LA must comply. These would include section of the Local Government Acts of 1972, 1999, 2000 and 2003, plus the Public Health Act 1938.

In addition to the above the courts also considered other legislation that the LAs needed to comply with in order to establish a special legal regime.

LAs will be able to claim the VAT on the costs associated with those activities, under s33 VATA.

Examples of activities accepted as non-business

  • Sports lettings – The hire of a sports facility by an individual or club for sports use, including a recurring series of lets, previously covered by the ’10 or more lets’ rule.
  • Lettings of sports facilities to a business – For instance, aerobics or yoga instructors, five-a-side football league, etc. The non-business treatment will apply provided the business uses the facility for the benefit of individuals taking part in sport.
  • Lettings of non-sports facilities for sports use – For example, a village hall, community centre or school hall let to an individual or club to take part in a sports activity, such as badminton, table tennis, etc. Such lettings will qualify for the non-business treatment ONLY if the LA has set up the room for use as a sports or leisure facility prior to the start of the hire period (see ‘Room/space hire’ below).
  • Long-term leases of sports facilities – The non-business treatment applies to a lease where what is leased is a LA-maintained and managed facility. However, non-business treatment will not apply to a simple lease of a sports facility where the tenant takes the responsibility for its maintenance and management.
  • Letting a park for a sports event – Although LAs generally run parks under powers provided by other legislation, it is accepted that the hire of a park for a Parkrun, cycle race, etc., is sports use. The non-business treatment may apply ONLY if the LA has set up the space for the specific sports activity prior to the start of the hire period (see ‘Room/space hire’ below).  
  • Sports tuition and sports-related education – For example, swimming lessons, sports coaching courses (including the provision of a sports coach to a third party to run such courses).  
  • Outdoor pursuits centres – Where the supply is expressly one of sporting and leisure activities, such as canoeing, climbing, bouldering, etc., with instruction and/or equipment, this is within the scope of the non-business treatment. However, where the supply is clearly one of education, such as classroom-based learning, this is a supply of education that is exempt from VAT.  
  • Letting of sports goods - The letting by a LA of appropriate sports equipment in conjunction with the letting of the sports facility to which that equipment relates – for example, badminton rackets, table tennis bats, ice skates, etc. – can be treated as closely related to the provision of the sports services and therefore treated as non-business.

Examples of activities excluded from the non-business treatment

  • Room/space hire - Although the legislation covers the provision of premises for sports, leisure and recreational uses, HMRC’s view is that where the room is not set up for participation in a sporting or leisure activity – for instance, a club hires a room for a meeting or social event – this remains the hire of a room which will either be exempt from VAT or taxable at the standard rate if the property is subject to an Option to Tax.  
  • Sale of sports goods - The non-business treatment does not apply to the sale of sports goods – for example, shuttlecocks, tennis balls, swimming goggles, etc.