Value Added Tax (VAT) is a tax that is charged on most goods and services that VAT-registered businesses provide in the UK.

Most clubs, county boards and councils will be familiar with the extra cost of VAT on their purchases. However, where a club, county board or council provides goods or services which are subject to VAT, it has to register with HM Revenue & Customs and charge VAT at the rate of 20% on the price of those goods or services.

Registration and the requirement to charge VAT is only compulsory where the club, county board or councils’ taxable turnover (that is, turnover taxable at the standard 20% or zero rates) exceeds £77,000 per annum.

However clubs, county boards and councils may wish to register voluntarily if their annual taxable income is lower than this threshold, in order to benefit from being able to reclaim VAT on their purchases. See HMRC guidance here for general VAT guidance. However, registration will mean compliance with VAT administration including issuing VAT invoices, filing quarterly VAT returns on line and keeping appropriate records and accounts. The club, county board or council will also be liable for back VAT, interest and penalties if it makes errors.

Charging VAT on income

Not all club, county board or council will have taxable income since charges to members for playing are usually exempt.

Bar sales and sponsorship income will be taxable generally, so clubs, county boards or councils with bars or sponsors will need to consider registration.

Grant income is generally not taxable.

It is worth noting that individuals who receive these goods or services in a personal capacity cannot recover the VAT charged and this effectively increases the price to those individuals.

Recovering VAT on costs

A club, county board or council pays VAT on purchases of goods and services supplied to it. If the club, county board or council is VAT registered it may be able to offset the VAT which it pays against the VAT it charges on its income, subject to certain rules.

  1. Where the cost of the goods and services directly relate to an activity which generates taxable income (e.g. purchases for the bar) then that VAT is recoverable in full.
  2. If the cost relates to exempt income, such as costs relating directly to playing members, whose membership income is exempt from VAT (e.g. pitch or changing room repairs which only benefit the playing members) then it will not be recoverable at all.
  3. VAT on costs which relate to both taxable and exempt income e.g. club overheads, is partially recoverable under what is known as “partial exemption”. If the club’s exempt input VAT does not exceed a defined “de minimis” level (currently £7,500) then it may be recoverable in full.

These recovery principles also apply to the costs of improving facilities.

VAT costs on facility improvement

VAT is a very complex tax for voluntary club, county board and council administrators to deal with – it is not well understood and hence the VAT cost imposed on new facilities is often overlooked.

Generally VAT will be charged on the cost of a new pitch or clubhouse and if the club is not registered it will add 20% to that cost.

Even if the club, county board or council is registered there is still likely to be a VAT cost as the club, county board or council is likely to earn exempt income from playing membership fees. In this situation it will be partially exempt and unable to recover all of the VAT charged to it. As explained above, VAT will only be fully recoverable if the income generated in relation to the costs is fully taxable.

The new facility may itself generate taxable income which may necessitate registration. By increasing the taxable income generated by the new facilities e.g. bar sales and sponsorship, VAT recovery may be improved. Taxable income can also be generated by electing to waive exemption in relation to the club, county board or council property i.e. charging VAT on rental income, but this should be only done with care after taking appropriate professional advice.

Documenting the club, county board or councils plans to do so will be important.

For Clubs spending £250,000 or more on a new building, they may have to adjust their VAT recovery over a 10 year period, depending on the building’s use. This is dictated by the Capital Goods Scheme.

Zero rating for charities

Another way of minimizing the VAT cost is to avoid paying it in the first place.

If the club, county board or council is a charity then the construction cost of any new sports building may be charged to tax but at the zero rate.

This socalled “zero rating relief” is available to a sports charity for a new building that is used as a village hall or similarly in providing social or recreational facilities for a local community.

The club, county board or council must be a charity registered with the Charity Commission (if it is in England and Wales) Scottish Charity Regulator (if it is in Scotland) and recognised as a charity for tax purposes.

In practice some sports organisations have been able to obtain charity and zero-rating status for new buildings.

Registration as a charity brings with it additional legal obligations and administration as well as tax advantages.

VAT returns

Claims for VAT recovery/offset will be made on the club, county board or councils’ quarterly VAT return which must be filed on line.

HMRC may choose to audit the club, county board or councils’ VAT return if it shows a substantial repayment of VAT is due before making the repayment. The most likely cause of a substantial repayment of VAT would be reclaiming the VAT on a facility development.

Planning and professional advice with substantial projects and a potential 20% VAT on cost, planning to maximise VAT recovery well in advance of contract signature and taking professional advice where appropriate, is essential.

Detailed VAT guidance for sporting organisations can be found on the HMRC website.