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HMRC have changed their interpretation of the law relating to membership schemes allowing unlimited access to facilities in a leisure centre.
Following various representations from the leisure industry - and taking into account the comments made in the Court of Appeal in HMRC v Weight Watchers (UK) Ltd [2008] STC 2313 about the typical consumer - the taxman no longer sees the supply as a right to use the services, but as being the supply of underlying services.
The previous approach, explained independent VAT consultant Neil Warren, was that if one of the potential benefits of the membership scheme for a customer was standard rated - for example, the use of a sauna - then the whole charge would be standard rated.
This would be even if most of the facilities related to playing sport - for instance badminton, swimming, squash - which is exempt from VAT if provided by non-profit making bodies.
HMRC now accept that the whole payment made by a customer is exempt from VAT as a single supply if the main purpose of the scheme is for a customer to use the sports facilities.
This is a welcome change of policy and brings to an end three years of uncertainty for many leisure trusts throughout the UK.
The effect of this change is that non-profit making bodies, including leisure trusts which were previously charging VAT on their all-inclusive packages, will have to treat them as exempt.
If businesses make both exempt and taxable supplies, they will be partly exempt and will have to apply the partial exemption rules to determine how much of the input tax incurred on their costs can be deducted.
No significant capital goods scheme adjustments are likely provided that the way sports facilities are supplied has not changed since any capital expenditure was incurred.
If sports providers acquired a CGS building asset as part of a transfer of a going concern, adjustments may be necessary if the previous owner deducted and was properly entitled to deduct input tax on the item.
This is likely if the previous owner was a local authority.
The change should be implemented from 1 April 2009 and there is no requirement to make adjustments in respect of supplies made prior to this date.
However, where a business wishes to make a claim to the taxman for a repayment of output tax incorrectly accounted for, they should do so.
HMRC have published Revenue and Customs Brief 13/09 to explain the new approach, which supersedes the advice given in brief 50/07.
