VAT expertise now available to support RYA Affiliated Clubs

We are pleased to announce that we have engaged Russell Moore as a consultant to provide VAT consultancy services to RYA Affiliated Clubs.  He will provide a VAT advisory helpline service for affiliated clubs, whereby he will offer a 30 minute consultation underwritten by the RYA.  In addition, he can offer affiliated clubs with additional services by means of direct engagement at the RYA negotiated rate of £100 per hour or as otherwise agreed with the club.

He is able to offer support on any VAT related matter including the following:

• recovery of VAT on facility improvement projects and new clubhouse buildings;
• leases and licences;
• general VAT recovery issues and Partial Exemption annual calculations;
• opportunities for retrospective VAT recoveries;
• use of the fundraising event exemption.

In this edition of Club Room Russell has kindly provided advice on the following topics:

Action may be required to protect club VAT recovery position

Covid disruption may have caused many clubs an inadvertent VAT recovery problem.  This issue can be easily overcome but it does require clubs taking action to seek HMRC approval.

During the periods of Covid restrictions on hospitality venues, many clubs have experienced a dramatic reduction in taxable incomes such as bar and catering sales. However, VAT exempt incomes generated from participatory subscriptions have largely remained the same (as this income is usually paid by annual/monthly direct debits which have continued to support clubs).  The consequence of this is that VAT recovery rates have materially reduced causing concern. This reduction is particularly harsh and can be extremely costly where clubs are currently incurring one off costs such as building works (clubhouse construction, extensions, refurbishments etc) or other facility improvement works.

The problem arises due to the vast majority of clubs using a VAT partial exemption recovery method based upon actual income generated in the year. This is termed as the ‘standard method’ and generally reflects the activities of clubs to provide for a ‘fair and reasonable’ level of VAT recovery. In fact, most clubs are able to fully recover all VAT they incur as the level of exempt input tax is low and falls below the annual allowance of £7500. The exception to this is years where there is one off costs such as building works or facility improvements where only a proportion of the VAT incurred can be recovered.

The issue clubs are faced with is that the Covid closure has completely changed the income clubs are generating. As stated above, exempt income may have largely remained at the same level whilst taxable incomes have dramatically reduced. Typical examples I have seen suggest the taxable income has fallen from circa 65 per cent to less than 30 per cent, if not lower. This is of course an unintended consequence of the Covid closures but can cause a real problem for clubs impacting upon VAT recovery.

This issue can be overcome easily enough but clubs need to take action in order to retain VAT recovery rates at pre Covid levels. Clubs can seek approval from HMRC to use an alternative VAT recovery method termed as a ‘Partial Exemption Special Method’ (PESM) to ensure that a fair recovery rate is achieved IN Covid impacted years. HMRC will accept that clubs switch to a ‘use’ based recovery method rather than actual income generated to overcome the distortion caused by Covid. Typically, ‘use’ would be measured by using the income generated in a pre-Covid year as the basis for the method. So for example, if VAT year ending in 2022 has been impacted then the club can seek approval to use the income from VAT year ending 2021 (or even 2020 or 2019) to adopt the same per centage VAT recovery rate as that achieved in the earlier year.

Of most concern is where clubs are currently, or have recently, undertaken a capital project. If clubs are required to apply a materially reduced level of VAT recovery due to the Covid impact on incomes this could result in a material cost from irrecoverable VAT. Even projects undertaken up to ten years ago could be impacted. Projects where the net cost is over £250k are accounted for under a special scheme termed the Capital Goods Scheme where the VAT recovery is assessed over a 10-year period. A reduced VAT recovery rate in any of the ten years following completion could have a material cost arise.

Clubs who believe they may be impacted by this issue are encouraged to take action and submit a PESM application to HMRC.  Russell is able to offer to make the application on behalf of RYA affiliated clubs for a fixed fee of £250.

Potential VAT windfall claim for clubs

Numerous not-for-profit sports clubs have recently enjoyed material windfalls from VAT previously declared on sales made at certain fundraising events held by the club during the last four years. This will principally be bar income from such events but may also include ticket sales, catering and other supplies made.

The criteria to be met to enable an event to qualify for the relief is that the event must be an event of the club that was principally held to raise funds for the club and/or a registered charity. Attendees should be aware it is being held to raise funds for the club. Events held for other organisations where they hire the function facilities of the club do not qualify such as private weddings, birthday parties, wakes etc.  

Events which typically qualify include Halloween, bonfire night, regattas, flag officer lunches/events, ladies day, race nights, Christmas events, quiz nights, comedy nights.

The key is to ensure that income from the qualifying events can be exempt from VAT without exceeding certain limits (the Partial exemption limits) that potentially restrict the ability of the club to recover all VAT incurred on exempt related costs. These are called ‘Partial Exemption De minimis limits’ and enable the club to recover up to £7500 exempt input tax per annum without restriction. HMRC require an annual Partial Exemption calculation to be submitted for each VAT year with the claim and all VAT incurred in each year to be attributed to taxable, exempt or partial recovery activities.

It is advisable to seek professional assistance when making such a claim.  Russell is able to offer his services to undertake all necessary tasks to assess, calculate, submit and manage the claim through HMRC.  His costs are on a no claim no fee basis at 20% of a settled claim.

One such club which has already benefitted from making a claim is Sovereign Harbour in East Sussex. The club engaged Russell on a ‘success only’ basis to assess, submit and manage a claim for VAT previously declared over a four year period and were delighted when following review HMRC accepted and settled the claim in full. Club Director Charles Herrod commented: “Without Russell’s specialist knowledge we would have lost out on a real financial benefit for the club. The VAT rules are complex and without good advice we do struggle to make sure we are doing it right and optimising any possible reliefs. Russell was very helpful in managing the whole process and the outcome was a really great result! We continue to benefit from the relief going forward.”

Any club wishing to discuss this opportunity should contact the Legal Team via email: legal@rya.org.uk