VAT: Tennis club wins match with HMRC

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Neil Warren considers the key issues with partial exemption for sports clubs, by examining the cases of Queen’s Club Ltd and Bedale Golf Club, which will be relevant to other clubs.

The FTT has ruled that Queen’s Club Ltd (TC06119) could fully claim the input tax on the costs of renovating a café at its tennis club; there was no link with the exempt supply of membership fees.


Queen’s Tennis Club in London is internationally recognised as a top tennis facility (world class was used more than once in the tribunal report). This is significant to the case because the taxpayer claimed (and the court agreed) that members and potential members were only interested in the tennis facilities when they paid their annual membership fee of £1,820 (exempt from VAT). They were not attracted by the catering or bar facilities.

The Club had a ten-year waiting list to join, solely because the players were excited at the prospect of getting on the court and playing on a top grade surface that has graced many of the game’s top stars.

Partial exemption

Based on the arguments set out above, the Club and its advisers decided that the cost of upgrading a café to a restaurant on the site was wholly relevant to taxable supplies of food and drink sold to members and their guests using the facility, so there was no input tax block needed under the rules of partial exemption.

HMRC concluded that the costs were “residual” for input tax purposes, ie partly relevant to the exempt membership fees of tennis players because the restaurant is a benefit of membership. Residual input tax can only be partly claimed, usually based on income percentages using the standard method of calculation (VAT Notice 706, section 4).

HMRC was wrong

Any business allocating input tax for partial exemption purposes needs to consider if there is a “direct and immediate link” with both taxable and exempt supplies (residual input tax) or just with taxable or only with exempt supplies (direct attribution).

The court concluded that the club members were only attracted to the playing facilities of the club when they applied to join. It allowed the appeal, and noted that the waiting list for potential members actually increased when the restaurant was closed during the upgrade project. The judge concluded: “The focus is on the sporting facilities”.

Contradiction with similar case?

VAT enthusiasts will remember the case of Bedale Golf Club (TC04619) in 2015 where the judge supported HMRC, and concluded that the bar at a local club was a benefit of playing membership and therefore input tax on bar overhead costs was residual.

When I first considered the Queens case I was a bit concerned at the potential contradiction between these two cases, but the key fact is that Bedale was a local club where members are attracted by the whole package of benefits on offer, including the bar. In the case of Queen’s Tennis Club, it is all about the tennis and the hallowed turf on their courts.
No problem with input tax on stock purchases

It is important to be clear that we are only talking about claiming VAT on the overhead costs of bars, cafes and restaurants, and not VAT on stock purchased for resale. It is fully accepted by HMRC that input tax on bar and restaurant stock for resale has a “direct and immediate link” with the taxable sales of food and drink and can be fully claimed (assuming it is standard rated stock being purchased).

However, now might be a good time for advisers to get together with sports club clients to consider the overall issue of input tax allocations on non-playing costs as far as partial exemption is concerned.

Is your club like Queens or Bedale? The answer to that question is a big one as far as VAT is concerned.

About Neil Warren

Neil Warren

Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.


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