KPMG Law victory: local authorities have right to recover millions in VAT on sports activities

local authorities have right to recover millions in VAT

Ruling could prevent cuts to leisure activities that provide a lifeline in wake of COVID crisis.

  • The First-tier Tribunal (tax chamber) (“FTT”) released its long-awaited decision this week in the ‘non-business sports’ appeals which opens the gates for councils to recoup millions in VAT
  • FTT decision means that sports activities provided through their leisure centres can now be provided free of any VAT
  • The FTT decision was made on the basis that local authorities are acting as public bodies in providing these services and so cannot be recognised as making supplies in the course of any business
  • Solicitors from KPMG Law UK represented Chelmsford and Midlothian councils, but the ruling opens the gates for other English, Welsh and Scottish councils to recoup millions in VAT.

Richard Turnbull, tax partner for KPMG UK, comments: “We’re delighted with the outcome. It’s a ruling that, beyond our clients represented, will mean many local authorities can supply these services free of VAT. Amid the COVID crisis, local authorities’ belts are getting tighter, and this outcome could present a lifeline for authorities across the country who have had to look at cuts to services such as leisure to try to balance the books.”

The result follows on from an earlier decision in 2017 from the European Court which had already opened the gates for some councils to receive VAT refunds.

Richard Turnbull adds: “Unless HMRC appeals, the decision of the Tribunal should now create a level playing field for all local authorities across England and Wales, as VAT will no longer be a cost for public leisure services. Beyond the practicalities, maintaining healthy lifestyles is high on everyone’s agenda now, so this decision represents much more than simple VAT savings.”


Notes to editors:

Chelmsford and Midlothian were represented by KPMG Law in the UK, with the case being presented by Amanda Brown (partner) supported by Adam Rycroft. There is the possibility that HMRC may appeal.

There were three main arguments presented by KPMG to the FTT in support of treating the supplies as ‘non-business’:

a.     The first argument was that leisure services are not provided as a trade, and the costs significantly exceed income.

b.     The second argument relies on the specific terms of EU law which recognise that public authorities are not to be treated as conducting economic activity to the extent they are acting as a public authority pursuant to what the CJEU has previously referred to as a ‘special legal regime’.

c.      The third argument relies on the ‘Marleasing’ principle which requires national courts to interpret domestic legislation so far as possible in conformity with EU Law. It was argued that the UK legislation should be read so as to require that the terms of Note 3 to Group 10 VATA, which exclude local authorities from the scope of the exemption, be read as excluding exemption in favour of treatment as ‘non-economic’ activities. Such a result was argued to be in conformity with Article 13.2 of the VAT Directive which grants the UK permission to exclude such services from the scope of the exemption in favour of their treatment as non-economic activities. 

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