A consultation is underway to review whether local authorities which rely on third-party operators to deliver leisure services could still benefit from recent changes to VAT.
The consultation – which involves consultants Max Associates, leading tax advisers and local government lawyers – will consider how agency agreements could be presented to bring savings to the partners, while also satisfying HMRC and meeting legal and procurement requirements.
Lisa Forsyth, Managing Director, Max Associates, said: “Initially, when HMRC announced VAT revisions back in March this year, it appeared that the only beneficiaries would be local authorities managing in-house leisure services.
“This was because the changes focused on the re-classification of services such as gym memberships and other facility visits as ‘non-business’. Since not-for-profit leisure trusts can reclaim VAT associated with activity income, there was no immediately obvious financial benefit for them.
“However, they do still pay corresponding irrecoverable VAT on expenditure. Some leisure operators are developing a new ‘Agency Agreement’ which could see operators collect income on behalf of the local authority as its ‘agent’.
“In this scenario, income remains ‘non-business’ and therefore there are corresponding benefits on irrecoverable VAT on the expenditure.
“The impact for the sector could be huge. UK Community Leisure estimates for example, there are circa 780 not-for-profit leisure organisations. If all were to benefit from an agency agreement model with their local authority client, the anticipated financial benefit would be somewhere between £50,000 and £100,000 per facility, equating to a collective benefit of circa £39 million – £78 million per annum.
“Add this income to the potential uplift in income from the 2,700 public leisure facilities managed in-house and benefiting from VAT relief on newly classified ‘non business’ income and the total improvement in public sector leisure centre finances could be anywhere between circa £100 million and £150 million per annum.”