A Conservative Club on the Isle of Wight faces repaying some £17,000 after a First Tier Tribunal (FTT) ruled that membership fees were not exempt from VAT, in a ruling which may see political clubs across the country facing similar bills
Many of these clubs do not charge VAT on their membership fees believing that they, like trade unions, are exempt under the EU VAT Directive.
Shanklin Conservative Club submitted a claim for overpaid output tax on 31 March 2011, on the basis it was a non-profit making body with objects in the public domain and of a political nature. The claim covered the period March 2007 to September 2012 and was originally for £32,369.
Subsequently the amount was revised down, as the club already had an agreement with HMRC relating to VAT exemptions covering its provision of sports facilities and publication of a newsletter, so the amount it was claiming in respect of membership subscriptions was reduced to £16,985.
In April 2013 HMRC rejected the club’s claim, on the basis it did not meet the criteria for exemption, and the case went to the FTT. [Shanklin Conservative and Unionist Club and Her Majesty’s Commissioner’s for Revenue and Customs, [2016] UKFTT 0135, TC04923].
At the tribunal, the club argued that it promotes the aims of Conservatism and that members must agree to support the Conservative Party before joining, and that as a political organisation the whole of the membership subscription should be exempt from VAT.
However, the judge stated: ‘While I accept that the motive for the establishment of the club was political, in that it was intended as a local focal point for recruiting and organising members of the Conservative Party, and I accept that the club did provide a forum in which members could undertake political activities, but I find from consideration of the above evidence that the most significant of its activities at the period in question was providing social amenities to its members, albeit all its members would share similar, conservative political views.’
The judge said that while members did engage in some political activity, such as leafleting in the run-up to elections and providing a venue for local MPs surgeries, other benefits were more significant. These included the low-price bar, social activities such as bridge groups, and use of the sports facilities.
The judge also said that while the club did provide political dinners for members to attend, there was no evidence that these rights were exclusive to members and in any event tickets had to be purchased and were clearly sold in order to make a profit. This mean the dinners themselves were neither in return for nor subsidised by the membership subscription; nor did it appear that the right to buy tickets was exclusive to members.
Having decided what the members received in return for their subscription, the tribunal considered the issue of whether the club was making a single supply comprising all the various benefits, or whether it made a number of different supplies. In the former case, the entire supply, being a single supply, would have to meet the test for exemption; in the latter case, some of the supplies could be exempt while others were standard rated.
The judge stated that ‘overall I find that none of the more significant elements, such as the right to attend the premises with its low-cost bar and free live entertainment, the right to use its sports facilities, the right to participate in political events and activities, could be said to be ancillary to any of the others.’
The judge found there was a ‘table top’ or Levob-type single supply, stating: ‘It is not just that a single fee is paid and that it is not possible to be entitled to one benefit without being entitled to them all: it is also clear that the leisure and political activities provided by the club are inextricably linked.’
As a result, the tribunal was in agreement with HMRC that the club’s membership subscription was in return for a single supply which comprised indivisible elements it would be artificial to split. The judge rejected the argument that an element of the membership subscription was in return for a single supply comprising just the political elements of the overall supply, saying there was, on the contrary, a single supply comprising multiple elements which were standard rated apart from the exceptions previously agreed.
Brent Goodwin, VAT manager for Newby Castleman, said: ‘This is an important ruling which may escalate further in the courts and that could have significant implications for political and indeed other members clubs around the country. It raises serious questions regarding the extent to which any club or association can rely on the exemption and also about the on-going existence of the extra statutory concession (ESC 3.35) which many such organisations have relied upon to exempt all or part of their subscription income.’
‘We would urge anyone connected to political or other organisations which currently exempt part or all of their subscription income to review their VAT position as soon as possible as this should be seen as a warning to those who have been following similar practices to the Shanklin Conservative Club. They will need to consider their finances and in some cases prepare to put funds aside.’
The FTT ruling is here.
