Date of issue: 22nd November 2004

MINIMISING VAT ON MEMBERSHIP SUBSCRIPTIONS

Chartered accountants Clement Keys, Birmingham is advising commercial health clubs, leisure and sporting facilities which operate membership schemes to review the way they deal with fees paid in instalments, to ensure they are accounting properly for VAT.

In a recent tribunal case Riverside Sports and Leisure Club claimed that the higher fees charged to members paying by instalment - compared with the lump sum paid by those choosing an annual subscription - amounted to a credit charge which was exempt from VAT.

"Riverside Sports and Leisure Club's argument failed for a number of reasons, but the case highlights the fact that it is possible for businesses which levy a higher charge for monthly subscription payments to view the additional amount as exempt from VAT," says
Steven Simmonds, director of VAT services at Clement Keys, Birmingham.

"The excess charge the club levies can be treated as an interest charge for the provision of a deferred payment service, and no VAT is payable on this so long as membership contracts run for 12 months and are structured appropriately."

Subject to certain criteria, businesses may be able to treat the difference between the one-off membership fee and monthly subscriptions paid by instalment as an exempt credit charge with very little, if any, impact on input tax recovery.

Commercial operators of fitness centres and sports facilities should be aware of the impact of Customs and Excise revised policy because they may be in breach of the latest regulations governing VAT on membership subscriptions and could face an assessment by Customs and Excise and a potential demand for interest.

Steve Simmonds recommends that businesses review their membership contracts and seek professional advice before instituting any changes, to ensure they comply with the current VAT regulations.