October 5th, 2017 / Insight posted in Articles

Weekly VAT Update – 3 October 2017

Queen’s Club

Queen’s club (the club) is the well known tennis club which makes VAT exempt supplies of sporting services as well as taxable supplies of food and drink in its bars and restaurants. It incurred costs in refurbishing bar, restaurant and café facilities, the VAT on which it sought to recover on the basis that the costs related wholly to the taxable supplies. HMRC objected and considered that

  • the costs were overheads; and
  • only a proportion of the VAT was recoverable based on its partial exemption fraction.

At the hearing both parties could not agree as to whether the Club had a contractual obligation to members to provide them with access to bars and restaurants: the club gave evidence that it did not, which the Tribunal accepted. The parties were also divided on the importance that members placed on the refurbished restaurant and bars: the club said that most members use the club to play sport and do not use the restaurants or bars.

The Tribunal accepted that whilst members found it a desirable feature of membership that they could use the restaurant and bars that did not establish a direct and immediate link between the refurbishment cost and exempt supplies of membership. Rather members are members in order to use world class sporting facilities and not for social reasons. The club also adduced evidence that it does not seek social members although members who can no longer play sport can continue their membership. Therefore the Tribunal found that there was a direct and immediate link between the refurbishment works and the taxable supplies of food and drink in its bars and restaurants and that the VAT on the refurbishment works was fully recoverable.

Failure to prevent tax evasion

From the start of October there is a new offence of failing to prevent the facilitation of tax evasion. Businesses can now be guilty of an offence if an associated person, including employees, have deliberately facilitated tax evasion. Businesses should therefore carry out a risk assessment in order to identify controls and systems intended to mitigate against VAT evasion.