Are services closely linked to sport exempt from VAT when provided by a public body?

Are services closely linked to sport exempt from VAT when provided by a public body?

The European Court has today published its Judgement on the questions referred to it by the First Tier Tribunal in the case of the London Borough of Ealing (“Ealing”).  We believe that the Judgement has massive implications for the taxation of sporting services and will inevitably lead to major changes in legislation and practice.


Ealing had put in a claim to HMRC for the repayment of VAT on sporting services, contending that they should be treated as exempt under European law. HMRC rejected the claim on the grounds that the national legislation excludes the exemption of such services when provided by a body governed by public law. Ealing appealed to the Tribunal, which then referred some preliminary questions to the European Court.

The Judgement

In its judgement, which accords with the earlier Advocate General’s opinion, the Court found that:

  • The United Kingdom is entitled to impose a condition that such supplies by non profit making bodies governed by public law may only be treated as exempt if this would not lead to a significant distortion of competition, even where prior to the condition being introduced the supplies had been treated as taxable.

However, it then went on to confirm that:

  • Such a condition cannot be imposed on non profit making bodies governed by public law unless it also imposes the same condition on other non profit making bodies.

In short, the UK government can impose restrictions on the exemption of sporting services to prevent distortion of competition. But it cannot impose them on public bodies without imposing the same restrictions to other non profit making bodies to which the exemption currently applies.

The next steps

The matter will now be referred back to the Tribunal for it to consider the European Court’s answers to each of the preliminary questions raised, and to apply those answers to the facts of the case in question. It is hard to see, however, that the European Court responses leave much room for interpretation.

The Implications

While it is likely that the domestic legislation and practice will have to change (notwithstanding Brexit), it is difficult at this stage to predict what form this will take.  In our view, there are two obvious options:

  1. apply the same restrictions to other non-profit making bodies such as charitable trusts. This would be likely to have the result that, in many cases, sporting supplies that are currently exempt would become standard-rated, which would effectively reduce the net revenue from such services, but would allow for greater input tax recovery by the bodies affected. This would undermine the outsourcing model currently employed by many local authorities as the output tax advantage would be lost;  or
  2. remove the restriction completely. This would mean that sporting supplies made by public bodies would become exempt. While this would increase net revenues, it would have a detrimental impact on the public body’s partial exemption position with a potential loss of VAT recovery far beyond that incurred in the delivery of sporting services.

In either case, the changes will have a financial impact on the delivery of sporting services, and we would urge all public bodies to consider how they might be affected, and to identify any actions that may be necessary to protect their position.

Should you wish to discuss how you may be affected please contact:

Nick Burrows 07805 449651
Peter Gladdish 07977 513735