a local not for profit swimming club has just received a vat bill from the Leisure Centre requesting the vat on the last six years total rents. The club is not vat registered and does not have the funds to pay this. Does the club legally have to pay this past vat?
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Customer ? Or supplier ?
This is really another one for the www.legal.net.
It depends on the contract. Does it quote "a price" or "a price + VAT" ?
If the former, no. If the latter, probably yes.
Probably depends upon the "lease" or rental agreement. If the agreement was "excluding VAT" and the landlord is now back-claiming the VAT the swimming club needs to look at whether there was a "contract by conduct" i.e. the passage of 6 years has created a contract which may vary from the "lease". This is likely to be a legal matter.
Wot?
No letter attached to explain circumstances?
Talk to the MP and get MP to ask circumstances and specifically why 6 years.
Then phone HMRC and ask if the bill is a genuine bill from a registered legal entity
Then call the local newspaper.
Useful to identify the organisation that bills the club. Is it the local council?
Just your club or other clubs getting the same
Then look at the formal agreement
Then wait for Jason, Les. or one of the other respected VAT responders to reply
Wot?
No letter attached to explain circumstances?
Talk to the MP and get MP to ask circumstances and specifically why 6 years.Then phone HMRC and ask if the bill is a genuine bill from a registered legal entity
Then call the local newspaper.
Useful to identify the organisation that bills the club. Is it the local council?
Just your club or other clubs getting the same
Then look at the formal agreement
Then wait for Jason, Les. or one of the other respected VAT responders to reply
Once again Paul articulates the waterfall of questions that flood one's mind.
It's Rudyard Kipling
Who what where when why how.
Plus the 100% annoyance at the apparent lack of covering explanation.
If it is a local authority service
I would pen a letter to the CEO.
The demand has effectively come from his own office!
Im surprised its 6 years, don't they usually only go back 4. Presumably they have had an investigation or some bright spark has had a rush of blood to the head
I would go with an administrator that does not understand VAT rules and someone else pointing out the error of the entities ways.
6 years says it all to me
I would hope none of us would have a client stupid enough to attempt 6 years VAT charged to an unregistered customer.
It is a contractual matter; what did the agreement between the parties state?
The lack of covering letter is discourteous in the extreme.
Don't pay.
Talk to a friendly Solicitor.
6 years is a bit unusual, I would want to know why the VAT is only being charged now.
What could have happened?
Rent of sporting facilities is standard rated usually but can be exempt if a series of 10 or more lets to an eligible body, such as a swimming club/association. The exemption requires the customer to pay in advance for those 10 or more session, maybe HMRC have seen that was not the case....but HMRC can only go back 4 years.
It could be that the property was opted to tax, the rent was deemed exempt because of the series of 10 lets rule but once you lose the series of lets rule then the supply is standard rated....but HMRC can only go back 4 years.
It could be the leisure centre was never registered for VAT but had breached the threshold 6 years ago, HMRC have only now just noticed and registered them for VAT, backdated to whenever they breached the VAT threshold, HMRC can assess for more than 4 years when it relates to a failure to register for VAT.
So HMC will register leisure centre from say 01 January 2015 and then assess for output tax on taxable sales since 2015....and the leisure centre is trying to pass on the VAT to its customers hence we get a 6 year VAT bill. Not all sales will be taxable and so this might be why the leisure centre thought they were under the threhsold when they were not.
I wouldn't pay until I got a detailed explanation as to why you are being charged for 6 years of back-VAT. It might they have are right, but they could be wrong.
Then you need to speak with a legal professional to see what the contract states, if it says rent is £1,000 excl. VAT that can often allow the landlord to charge VAT retrospectively but there are a few ways that can be countered.
Dont pay it. Regardless if the contract says plus VAT or not. The Leisure Centre has probably had to retrospectively register for VAT. It cannot therefore go back and charge you more if at the time it wasnt VAT registered.
I have seen this several times with contractors who issue VAT only invoices for x years the agencies tend to pay them as they can recover the VAT. If they dont then the amount received is deemed to be the gross inclusive of VAT.
OP, has the club been using the facility for longer than 6 years? (I'm wondering / eliminating whether the 6 years might be the period of the club's usage).
Separate question, what's the entity status of the club. Is it incorporated, for example?
I was planning on asking just how an unincorporated association can enter into a contractual arrangement. And, as a follow-up, whether it can be bound to pay.
But I guess we'll never know. They're a not-for-profit swimming club, and the leisure centre are helping them in that quest; and that's all we're getting!
By the officer bearers of the Association signing as the trustees of said Association and binding the Association and their successors in office re same . (I am involved with an unincorporated association , fishing club, which owns property and that is how we deal with the legal niceties of either selling or leasing the property we own.)
Are you spinning me a line? Anyone signing that would make a rod for their own back!
I wonder whether the Leisure Centre just took their money and issued a ticket. I guess we'll never know the reel story.
By chance I was this evening looking up a question on accounting standards to be followed for said club re revenue recognition on external (non mutual) trading , in passing I came across this snippet from HMRC on Trustees and assets- I liked the Bubble Act bit below.
https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm41320
Fun now 'though not at the time presumably!
"The South Sea Company was a British joint-stock company founded in January 1711, created as a public-private partnership to consolidate and reduce the cost of the national debt. To generate income, in 1713 the company was granted a monopoly to supply African slaves to the islands in the 'South Seas' and South America."
Almost a precursor to Greensill (without the slavery of course) ... don't govts ever learn?
Thank you all. I agree that it is a contractual matter and I have instructed the club not to pay until I have further information.
It may not just be contractual.
There's a question mark over whether the charge is valid.