VAT And Sporting Clubs
This article explains, in general terms, how Value Added Tax (VAT) can affect non-profit-making sporting clubs. It is intended as a general guide only. VAT is a complex area and professional advice should always be obtained where significant income or expenditure is involved.
Although sporting clubs are not established to make profits in the commercial sense, HM Revenue & Customs generally regards them as carrying on a business for VAT purposes.
A club is required to register for VAT when its taxable turnover exceeds the VAT registration threshold. This test applies either by reference to the previous twelve months or where taxable income is expected to exceed the threshold in the next thirty days alone.
In assessing whether registration is required, all sections of the club must normally be included. Sections can only be excluded where they have their own constitution and can be shown to be financed and managed independently in practice. This is an area where clubs often make incorrect assumptions.
Once a club becomes liable to register, it must notify HMRC without delay. Failure to register on time can result in penalties and interest, even where the club did not realise that the threshold had been exceeded.
VAT legislation provides an exemption for services that are closely linked and essential to sport and physical education. In practical terms, this means that playing members’ subscriptions, together with services and equipment supplied to members as part of sporting activity, are normally exempt from VAT.
While this exemption is helpful, it can also give rise to difficulties. Exempt income restricts the club’s ability to recover VAT on its expenditure. Where a club has a mixture of exempt and taxable income, it will usually be treated as partially exempt, and special rules apply to the recovery of VAT on costs.
This issue becomes particularly important where a club is planning major capital expenditure on sporting facilities, extensions or refurbishments.
A key part of VAT compliance is ensuring that all income streams are identified and that the correct VAT treatment is applied to each. The following categories are for guidance only.
Standard-rated income (VAT charged at the standard rate)
Zero-rated income (VAT charged at 0%)
Exempt income
(Not taxable, but relevant for VAT recovery purposes)
Exempt income where an option to tax may be available
Outside the scope of VAT
Sponsorship income is subject to VAT where the sponsor receives clearly identifiable benefits, such as advertising boards, promotional material or logos on team clothing. To maximise the cash retained by the club, sponsorship arrangements should be considered carefully at the outset.
In some cases, part of the payment may be a genuine donation, or may relate to specific advertising services. This distinction can be important, particularly where the sponsor cannot recover all VAT charged. Where the sponsor is able to recover VAT, the club will be required to issue a valid VAT invoice.
Advertising income, including advertising in programmes, magazines or on notice boards, is standard-rated.
Donations are outside the scope of VAT provided they are freely given and no benefit is received in return. This remains the case even where the donor has some influence over how the funds are applied.
Subscriptions may include several different elements. For example, a Vice-President’s subscription may include a donation, a magazine (which is zero-rated) and social membership (which is standard-rated). In such cases, subscriptions may need to be apportioned between their component parts.
Where the VAT treatment is unclear or material, it may be advisable to seek a written ruling from HMRC to avoid future dispute.
Where clubs operate a shop selling a mixture of standard-rated and zero-rated goods, appropriate records must be maintained. If till systems do not provide sufficient analysis at the point of sale, it may be necessary to agree a retail scheme with HMRC.
VAT on land and buildings is a complex area and specific professional advice should always be obtained.
Clubs may be able to opt to tax certain lettings that would otherwise be exempt. While this can allow recovery of VAT on associated expenditure, the decision is generally irrevocable and should not be taken lightly.
The expansion of VAT exemptions for sporting income can also restrict VAT recovery on new building projects. In some circumstances, VAT self-supply charges can arise on new work, storage or development, particularly where exempt income is significant.
To minimise the VAT burden, sporting clubs need to approach VAT in a planned and informed manner. Committees should ensure that VAT registration is monitored carefully, including the possibility of deregistration where turnover falls below the threshold.
The VAT treatment of sponsorship agreements should be agreed at the outset, and subscriptions should be analysed properly where they include more than one supply. All VAT invoices should be retained, and recoverable VAT clearly identified.
Committees should also understand which exempt supplies restrict VAT recovery and ensure that accounting records are kept in good order. Clear records reduce the risk of error and make any HMRC visit far less disruptive.
Further detail on vatable and non-vatable income is available in HM Revenue & Customs VAT Notices, including: