Interesting membership subscription VAT case
The recent VAT tribunal concerning the Reform Club deals with how a club should apportion its subscription under the VAT membership subscription ESC. This applies to nonprofit making members clubs that provide their members with a range of benefits,which would have differnt VAT liabilities if provided seperatly.
Membership of the club entitles members to use the facilities of the club which include meeting rooms, a smoking room, billiard room, well stocked library, lounges, a very fine resturant and bedrooms. The member must pay extra of course to use the resturant and bedrooms.
In common with a number of London clubs the Reform apportioned its subscription between the differnt VAT liabilities based on the area activities took up in the club. This resulted in 54% of the subscrition being treated as standard rated.
The clubs argument was that this figure of 54% was too high and down to an error in the method. The resturant and bedrooms should really have been excluded from the apportionment as to use them members would have to pay extra. As it was getting nowhere with trying to engage HMRC in debate on this subject it submitted an error correction that recalculated the method, excluding the resturant and bedrooms.
HMRC refused to pay the amount the club claimed and rejected their exclusion of the resturant and bedroom. It was this issue which went before the Tribunal.
The VAT tribunal rejected the clubs argument. Although the member had to pay extra to use the facilities the fact remained that to use them at all they had to be a member. This meant that it would be wrong to exclude these areas entirely as the club had done. This did not mean that it would not be appropriate to make some allowance for the fact that members had to pay extra but the tribunal was not able to decide this as it was not the matter the club had appealed.
I confess to to feeling rather sorry for the Reform Club. One gets the impression that the reason they submitted a voluntray disclosure is because HMRC would not engage in debate and give them an appealable decision any other way. The judge thought there might be merit in the method recognising the difference between free facilties and those subject to a further payemnt – so hopefully HMRC will accept this and enter into discussions now.
Unfortunatly even if the matter does go to appeal again it probably won’t be before the VAT Tribunal. It only just heard this one after HMRC agreed it could have jurisdiction. The interpretation of ESC’s is a matter for judicial review.
One can see similar types of argument being possible for other membership organistions that charge members a fee that allows them to exclusivly buy further services. Yet in my experience these are normally accepted as membership benefits.
To see the case click:Reform Club Tribunal