Members only at the bar

15th January 2016

The courts have considered a number of cases concerning disparities between the VAT treatment of members’  golf clubs (those owned and operated for the benefit of members) and proprietary golf clubs (where the business and grounds of the club are owned privately).  The decisions could have ramifications for the funding of sports and leisure organisations generally in relation to how fees are levied on members and other users of such facilities. 

The supply of certain services closely linked to sport or physical education by non-profit-making organisations to persons taking part in sport or physical education is exempt from VAT. Thus, ‘green fees’, which are charged to use facilities do not bear VAT – provided the club in question is a not run for profit. That of course excludes proprietary members clubs -which are run for a profit, and this additional cost  annoys them. They are especially vexed, because the exemption for sports clubs described above derives from an EU Directive which allows member states some discretion on how to apply the exemption in circumstances where the exemption would be likely to create some distortion of competition.

Over the past few years, representatives of proprietary golf clubs have been lobbying and litigating on the unfairness, as they see it, of their exclusion from the exemption.  On the other side, members’ golf clubs have fought equally vociferously with HMRC’s attempts to police the scope of the exemption. In a case called Bridport and West Dorset Golf Club, the CJEU found that the UK could not levy VAT on green fees charged by non-profit making clubs. Proprietary clubs of course must charge VAT.

As a result of that decision, many members’ golf clubs sought repayment from HMRC of output tax on green fees that they had already charged members. HMRC were unwilling to oblige them They offered to repay between 50% and 33% of the VAT so charged, on the basis that repayment of the VAT to members clubs would ‘unjustly enrich’ them – because the members clubs would have (incorrectly) on-charged the VAT to those non-member ‘green fee’ visitors and not repaid  the VAT it incorrectly charged them in the first place. The parties once again visited the courts for an answer.  In December last year, the First Tier Tax tribunal ruled that that the clubs should be able to recover 90% of they had incorrectly VAT charged ( and paid to HMRC) on the green fees.

Member’s clubs did not have it all their own way though. The same tribunal also ruled that corporate day packages offered by golf clubs should not enjoy VAT exemption, on the basis that the firm providing the hospitality, rather than the golfer, was the true beneficiary of the supply of the services provided by the golf club. Similarly, the tribunal held that fees charged to golfing tour operators should be subject to VAT, because the tour operator and not the golfer is the true recipient of the supply from the club, unless the tour operator acts as agent and invoices the green fees directly to the golfer.

A case decided a week later brought by a number of proprietary golf clubs[i]  addressed the issue of the VAT treatment of affiliation fees that English golf clubs pay to their local county associations and their national governing body. Members of golf clubs affiliated to these bodies typically pay them an annual subscription per member (approximately between £3,000 and £20,000 per club per year), in order for the member to have a recognised handicap.  The tribunal found that such affiliation fees fall within the VAT exemption, on the basis that it is the golfer who is the true beneficiary of the supply, even if the supply is actually made to the golf club.

Good news for all golf clubs, you might think. However, to be affiliated, a golf club must have a members club. Thus, while private members clubs are already constituted as members club,  the members of most proprietary golf clubs have to set up their own members club which is separate from the golf club company, which is not affiliated. Because it is the golf club company rather than the members’ club that pays the affiliation fee, VAT is applicable on it, even though the fee would be exempt if paid by private members’ clubs.

This results in a distortion of competition which of course upsets proprietary golf clubs. They tried to argue at the tribunal that the payment of the fees were a disbursement – that is they were paid on behalf of the individual member in question , and thus could be passed on by the golf club company to member . The tribunal disagreed.

What does this mean for the funding and structure of golf clubs and sports clubs generally?

For starters, proprietary club owners can no longer collect affiliation fees on a VAT exempt basis like members clubs do, nor can they pass on the fees as VAT- free disbursements. The bodies that levy the affiliation fees  might have to consider making the fees optional or payable by the member if the VAT exemption is to apply to proprietary clubs, although it is difficult to see why they may eb motivated to do so. In any event,  the cases may be of interest to  golf and other sporting clubs which are privately owned  who may need to review their rule-books relating to how fees are charged.

[i] Abbotsley & others