HMRC has recently ‘clarified’ its policy in relation to the VAT treatment of school holiday clubs in its Revenue and Customs Brief 18 (2020) following decisions from the VAT Tribunal.
The brief states that HMRC will look at the predominant nature of the club to determine whether the VAT exemption that covers child care can be applied or if the club is more focussed on the ‘activities’ then it is likely to be deemed taxable.
The main purpose of the club needs to be reviewed and carefully considered when determining the VAT liability applicable.
While this could affect schools themselves, it is more likely to affect their trading subsidiaries and any other organisations that provide school holiday club services.
It is important to note that this does not affect the VAT treatment of letting school grounds or buildings to operators of school holiday clubs.
VAT exemption applies to supplies of childcare made by charities and/or state regulated bodies, for instance those that are Care Qualify Commission (CQC) registered or registered with OFSTED. HMRC’s VAT notice 701/2 explains that this exemption can apply to day care services but not activity based clubs giving the example of dance classes.
HMRC will review the following when determining whether or not the care exemption can apply:
In many cases it will be clear whether the predominant activity is care or activities. For instance, a sports club with professional coaches which offers no other activities is likely to be considered an activity club and so taxed at the standard rate. On the other hand, a club with a qualified carer offering a range of activities such as painting, music, relaxation and table tennis is likely to fall with the exemption for childcare as the activities are ancillary. Some cases, particularly clubs that offer a wide range or sporting and non-sporting activities, will be less clear cut and rulings will be required to obtain certainty from HMRC.
If a club is considered to provide activities such that the care exemption cannot be applied, it is still possible that the conditions for other exemptions could be met.
Non-profit making schools avail themselves to exemptions covering education and sports services which would cover sports coaching, music lessons etc. However, the education exemption is usually not available to a school’s trading subsidiary and the sports exemption would only apply if the company was constituted with a non-distribution clause in its articles. Therefore, trading subsidiaries may need more advice in obtaining the non-care related exemptions.
Other non-profit making bodies may also qualify for exemption on activity-based courses. Examples could include community amateur sports clubs, orchestras, operas and theatre companies that have outreach programmes.
We would be happy to lead a virtual meeting to discuss the implications of this brief if we have sufficient interest. Please contact us to register your interest in attending such a meeting which we aim to organise in January 2021.