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VAT FRS not moving with the times?

Escape room

Surely it's time the VAT FRS was updated for newer style businesses.  We deal with an escape room and there is a bit of confusion as to whether it is entertainment (12.5%) or sports and recreation (8.5%).  I can see the reasons for both as people are entertained but there are some physical challanges!  The relevant goods test is met as the rooms are changed every few months but I will keep an eye on this.  What do you people think is best classification?

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06th Feb 2019 15:55

If there are significant physical challenges, I'd go with sport and recreation. If they're not significant, I'd go with entertainment.

It's a judgment call that you need to be able to justify. If you can justify it, you're grand - they can't backdate your choice.

If you pick something totally unreasonable - like sandwich shop - they can backdate it.

There are huge grey areas in FRS rates. They can't cover every single business type.

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By tom123
to lionofludesch
06th Feb 2019 16:05

Entertainment, would imply to me a sedentary activity, (watching something), so sport and recreation would fit.

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06th Feb 2019 16:41

Physical challenges? Really?
I had to bend down so that I could see something though a gap and there was a tiny bit of dexterity where I moved something hooked on to the end of a pole from one place to another.
Apart from that it was about as physical as a crossword puzzle.

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to andy.partridge
06th Feb 2019 17:40

But if you were watching tv, say, would you do any bending down to take part in that specific entertainment activity?

NB picking up the remote doesn’t count, the activity hasn’t started yet. Raising a drink to your lips is a different activity

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to atleastisoundknowledgable...
07th Feb 2019 09:53

I was responding to the OP's notion that there were 'physical challenges'.

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By Mr_awol
07th Feb 2019 09:00

At first I was pretty certain that an escape room would be a clear cut allocation to entertainment. It certainly isn't a sport, and although it is arguably a recreational activity, there is an existing VAT 'sector' of Sports and Physical recreation - I assumed that whomever compiled the FRS list had dropped the word 'physical' without realising the potential significance. I think youd struggle to justify physical recreation for an escape room.

So then I tried to find legislation on the categories, and didn't immediately find any. It seems the FRS legislation allows HMRC to compile a list as they see fit.

Next stop is the VAT manual, which is actually quite interesting (no really) because it includes examples of trades within 'sports and recreation' that I'd never put there. Betting shops being the main one. The full list is:
- Betting shops
- Casting for theatre, TV or films
- Gambling
- Ice or roller rinks
- Owning of racehorses
- Skateboarding parks
- Sports arenas and stadia
https://www.gov.uk/hmrc-internal-manuals/vat-flat-rate-scheme/frs7300

Now whilst I wouldn't expect a full and comprehensive list, I wouldn't really expect gambling or betting shops to be in there.

Entertainment includes 'Fairs and Amusement Parks' by the way, which doesn't exactly match an escape room but is about the closest fit you're going to find. If you don't think that one applies then you're left with other activities not listed at 12%

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07th Feb 2019 09:49

Thanks for your answers everyone, they are all much appreciated.

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07th Feb 2019 11:55

I've always found asking the client which they think is most relevant as a good option. Note down the reasons they likely think sports and recreation is most relevant and then put a note to remind yourself about VAT Notice 733 Setcion 4.2.

I've had a few queried over the years and all queries have been dropped quickly once that section has been quoted to the HMRC officer.

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07th Feb 2019 12:15

I have one of these as a client, and took the view that the activities fall squarely within 'recreation', based on the dictionary definitions of that word. I wrote to HMRC to ask them to agree but they weren't particularly helpful in their reply, stating that it is the taxpayer's responsibility to determine the appropriate sector, but at least they didn't object - and they've had 3 years to do so.

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