European Court decision could threaten local authority partial exemption

European Court decision could threaten local authority partial exemption

Sporting Services


You might be aware from our E-alert issued in January that local authority sporting services might become exempt from VAT; this could have serious implications for a local authority’s VAT recovery.  We believe affected authorities should be planning for this now.


This possibility arises form a strong opinion given by the Advocate General (“AG”) in response to questions raised about Articles 132 and 133 of the Principal VAT Directive, concerning the London Borough of Ealing.


In our alert we referred to the potential consequences for local authorities’ partial exemption, where such services continue to be made in-house. Even where the services are outsourced, local authorities will need to consider the implications should those services be brought back in-house.


Given the strength of the AG’s opinion, and notwithstanding the possibility that the final court decision could find differently, we believe local authorities should plan now for what is likely to happen once the European Court (“CJEU”) releases shortly its judgment.


We are already supporting a number of authorities with their current sports development programmes, and we know many other authorities have similar plans, some of which entail considerable capital costs; where this is happening or planned some early attention should be given to evaluating the possible adverse consequences to partial exemption in case the CJEU agrees with the AG.


Once a critical analysis has been given to the future position, a review of the historical situation can be performed to consider the pros and cons of submitting repayment claims for the last few years. Part of this review would necessitate an examination of the ‘unjust enrichment’ argument that HMRC is likely to present to any repayment claim.


While these prospective changes are likely to affect district councils and unitary authorities the most, counties should also review matters as any extension of the exemption is likely to affect sporting services provided in schools although, here, the detrimental partial exemption fallout will be less onerous.


VAT practitioners of long standing will realise that this position undermines the sterling work done in the early 1990s by the various lobbying groups to avoid the exemption, and for which HMRC was thanked then for accommodating.


The consequences of this decision, if it is confirmed, will affect all local authorities to some extent, and we are well placed to assist you with early intervention so that the risks can be satisfactorily managed.


Please contact us to discuss further:

Nick Burrows   07805 449651

Peter Gladdish   07977 513735