Fitness club loses VAT appeal
Gym membership fees which are paid late after a member has been barred from the gym are part of a service and subject to VAT, the Court of Appeal has ruled.
The case involved company Esporta, which runs health and fitness clubs in the UK.
Members join for minimum of one year and pay fees in advance, either in one go or by monthly direct debits.
The case heard in the Court of Appeal was about members who pay monthly in advance, and who default on their payments. When this happens, Esporta turns off the member's swipe card within five days, denying the member access to its clubs.
Esporta doesn't terminate the membership. It later tries to recover the outstanding membership fees for the remainder of the "commitment period" or until the end of a three-month notice period after the "commitment period" has ended.
In one instance, when Esporta barred a defaulting member it argued that any payment received from him after that time was compensation for breach of contract and not "consideration for services" therefore not subject to VAT.
HMRC argued that even after being barred from entering a club a member continued to enjoy benefits - for example, their club membership would be maintained without the need to re-apply.
Earlier this year, the Court of Appeal for England and Wales rejected...