VAT and sport
Although when introduced it was intended to be a simple tax, Value Added Tax (VAT) is now complex and has a significant adverse impact on sport. The main problems are as follows:
- Members of the public who participate in sport and purchase related goods and services incur VAT on their purchases.
- Non-profit making sports organisations, especially clubs which – though they may benefit from certain exemptions – still incur VAT as they cannot wholly offset or recover VAT paid on their purchases of goods and services. This is particularly salient in respect of capital expenditure to improve facilities, the VAT on which is often substantially non-recoverable.
The importance of the tax can be seen from the estimate produced for the Sport and Recreation Alliance by Sheffield Hallam University, which calculated that Government income from tax on sports expenditure is nearly £2.8bn. Most of this will have come from VAT.
The legal landscape
VAT emanates from the European Union. The UK must comply with EU Directives but sport could theoretically, in certain areas, benefit from VAT exemptions, zero rating, or reduced rates.
However, although the UK does allow exemptions from VAT on certain sports services, such as membership fees at a non-profit making organisation, one-off fundraising events or other donations, the UK does not allow sports organisations to take advantage of all the available reductions offered under the EU law.
The Sport and Recreation Alliance has been campaigning in three areas.
The EU White Paper on Sport formalises the EU’s commitment to ensure that sport receives favourable tax treatment, specifically through lower VAT rates and exemptions.
In addition, in a case involving Jeanfield Swifts Football Club, a VAT tribunal recently ruled that the club’s expenditure on a new pavilion could be zero-rated despite the fact that it was not a charity but a registered Community Amateur Sports Club.
Our three campaign areas are as follows:
- Application of the lower VAT rate (5% in the case of the UK) on the hiring out of sports facilities. This would encourage clubs to allow a wider community use of facilities and use previous VAT charges for the development of the club. It could also have an impact in terms of school building, encouraging the construction of high quality new facilities available to every community.
- A more sympathetic approach to zero rating in the case of construction costs for those sports organisations improving facilities. The Jeanfield Swifts case shows that this is possible within current VAT rules, which means that this would not require a change in the law, but a change in HMRC policy.
- The amount CASCs are allowed to reclaim in input VAT if they have exempt supplies should rise in line with inflation from £7,500 per annual – as it was in 1994 – to over £11,000. A 50% increase in the funds available to invest in regeneration for a CASC would be hugely beneficial.
In addition, any VAT campaign will be accompanied by new guidance for sports organisations on how to deal with VAT efficiently and at minimum cost.
The current economic situation means that tax breaks are increasingly difficult to secure, but the Sport and Recreation Alliance will continue to campaign on this issue.
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