Following the ECJ judgment in Canterbury Hockey Club (C-253/07), there will be changes to the exemption for sports related services from 1 September 2010, mainly affecting affiliation fees from governing bodies to member clubs.
Until now, HMRC has applied a narrow interpretation of the provision, which exempts services closely linked with and essential to sport and physical education, when supplied by an eligible body, to an individual taking part in sport.
The key is ‘to an individual’ because HMRC have taken that not to apply to affiliation fees calculated on the basis of, say, the club size or the number of teams involved, but only on a per person basis.
The case decision demonstrated that HMRC’s interpretation was too narrow in that relevant services by eligible bodies can still be exempt when supplied to corporate persons and unincorporated associations, provided that individuals taking part in sport are still the ultimate beneficiaries.
The changes from 1 September will reflect this decision, meaning governing bodies will have to exempt affiliation fees not charged directly to individuals, whatever the calculation basis, where the individual ultimately benefits.
However, supplies to commercial, profit-making organisations will not pass the beneficiary test and will thus remain standard rated.
HMRC have said that the current factors determining whether there is a single or multiple supply where a number of benefits are provided, and the apportionment option available through Extra Statutory Concession 3.35, will continue to apply after the changes have been implemented.
These changes are welcome, not only for those who have previously incurred standard rated affiliation fees, but also for non-profit making clubs whose members directly benefit from the letting of sports facilities as the exemption will now also apply to those supplies.
Those affected will be allowed to apply the changes from 1 September or make a retrospective claim, to which the 4-year cap and unjust enrichment provisions will apply.
Claims should include input tax adjustments under the partial exemption rules and there could also be an impact on direct tax.