Council in Northern Ireland wins battle with HMRC over sports and leisure services and VAT

Councils’ sports and leisure services in Northern Ireland are not liable for value added tax (VAT), the First-tier Tax Tribunal has ruled.

Sample cases were taken for England and Wales, Scotland and Northern Ireland after complaints from councils that HM Revenue & Customs had improperly charged them VAT on these services.

Monckton Chambers, whose Melanie Hall QC and Harry Gillow acted for Mid Ulster District Council, said that the decision for Northern Ireland would “potentially have far-reaching implications for all UK local authorities providing services pursuant to any statutory duties and powers which can be classified as a special legal regime”.

This was because the Northern Ireland tribunal found local authorities were not in competition with private providers of sports and leisure services.

“The question whether the same is true for the rest of the UK will be determined on the evidence at a further hearing if the parties so request,” Monckton said.

Mid Ulster inherited the case from the former Magherafelt District Council, which had claimed around £519,000 in overpaid VAT from HMRC.

Chelmsford City Council was chosen as the representative English and Welsh case and had claimed £900,000.

Scotland’s representative case was Midlothian Council, which had claimed £1m.

HMRC rejected all the claims and said VAT was payable at the standard rate.

The councils argued this was wrong on three alternative grounds. These were:

• supplies of sporting and leisure activities to members of the public are not ‘economic activities, and were therefore outside the scope of VAT;
• sporting and leisure activities were provided by the council in its role as a public authority acting under a special legal regime, and therefore it was not a ‘taxable person’ for these;
• sporting and leisure activities were provided by the council in its role as a public authority, and it was therefore not a taxable person by virtue of Note 3 Group 10 sch 9 VAT Act 1994.

The tribunals accepted the argument that services were supplied by the councils as public authorities for the purposes of art 13 of the Principal VAT Directive and operate as such under a special legal regime.

But on the first ground they said the provision of the leisure, sporting and physical recreation facilities by councils was “the supply of services for remuneration, and thus that supply constitutes economic activity”.

The tribunal concluded: “Subject to the second paragraph of art 13 PVD, the council is not a taxable person in relation to its supplies of the relevant sports and leisure facilities in the period under appeal.

“The applicability of the second paragraph of art 13 PVD will be determined at a continuation hearing, if the parties so request.”

Raymond Hill of Monckton acted for HMRC.

Mark Smulian