Shanklin Conservative Club Case- Is HMRC’s approach to membership apportionments wrong ?
The Shanklin Conservative Club case raises some interesting questions concerning the correct way to apportion membership subscriptions.
The apportionment of membership subscriptions has been a feature of the VAT system for many years. By allowing a supply of membership to be split into its different elements, with VAT being accounted for on each benefit according to its VAT liability, membership organisations can gain an advantage.
This normally comes about because they provide members with printed newsletters, which if treated separately mean output tax can fall or VAT recovery increase.
The current rules for apportionment date back to 2000 when HMCE published a policy change following the European Court case of Card Protection Plan. This case was concerned with the test that should be applied when determining if a supply was a single supply with a single VAT liability or multiple supply that could be split for VAT purposes. The HMCE reaction to this case was that the UK had been incorrect in allowing membership organisations to apportion their subscriptions as membership supplies would normally be single supplies with a single VAT liability. However, being aware that this change would cause problems for membership organisations, they would allow apportionment to continue under an extra statutory concession. ESC 3.35.
I see three main issues with the ESC. Firstly the rules applying to it are down to HMRC and there is not normally an effective recourse to the VAT tribunal. We saw an example of this two years ago in the Serpentine Gallery case when HMRC changed the rules and limited ESC apportionment only to organisations that provide members with a vote. A second issue is that HMRC sometimes insist on membership organisations treating part of their subscription, often the part relating to website members online access, as standard rated. If the supply is a multiple supply and can be apportioned in law rather than ESC, then these standard rated elements might in some cases be covered by an exemption. The third problem is that all ESCs are gradually being removed as the Courts have found they are illegal. At some point one assumes that ESC 3.35 will go and there no obvious way that HMRC can introduce legislation to replace it.
But there has always been a doubt as to whether HMRC are correct in their view that membership subscriptions will normally, as matter of law, be a single supply with a single VAT liability. The case that led to HMRC issuing its new policy in 2000 has been joined by other cases which set different tests for different circumstances and HMRC may have got it wrong.
The VAT First Tier Tribunal has recently considered whether a supply of membership to Shanklin Conservative Club was a single supply in law. It concluded that it was was, but not because of the Card Protection Plan case that HMRC based its 2000 policy upon but because of a later case – Levob. In this case, two or more benefits were inextricably linked so that it would be artificial to split them. Had the Court taken this approach when considering, say the facts of a learned society, that sends its members a journal they could also independently subscribe to, then the conclusion would surely have been that there was not a single supply but a multiple supply in law. i.e. that the view taken by HMRC in assuming apportionment is only allowed by concession is incorrect.
A First Tier VAT Tribunal does not create a binding precedent and another judge might see the matter differently, but it shows the matter is worth arguing. If the ESC is abolished there is also hope that apportionment can continue for at least some membership organisations. It may also be possible, if HMRC have insisted on treating part of a subscription as standard rated under the ESC to seek a refund.
The Shanklin case itself concerned whether membership of a Conservative Club was essentially political or social. It concluded it was single supply that was social and therefore subject to VAT – except for the snooker tables that were covered by exemption under the ESC. A link to the case is here :Shanklin Tribunal
My main guide to membership VAT can be found here