Zero rating for value added tax
Significant funding may be available from grant-making bodies (including for example The Football Foundation, The Premier League Community Facilities Fund and Sport England) to improve facilities for playing football in the local community. In some cases, it may be appropriate for clubs to also consider whether other sports may also be able benefit from a joint venture facilities development project. This is often driven by a local club or clubs working closely, often in partnership, with the local authority or a community association. Where the owner and provider of the facilities is a charity, zero-rating of the construction cost of any new indoor facilities may be available. This so-called “zero rating relief” is available to a sports charity in relation to construction of a new building that is used either for a ‘non-business’ purpose or as a village hall or similarly in providing social or recreational facilities for a local community.
The club must be a charity registered with the Charity Commission (if it is in England and Wales) and recognised as a charity for tax purposes. In practice, some charitable sports clubs have been able to satisfy the eligibility criteria for VAT zero-rating in relation to new buildings (e.g. clubhouse and/or changing facilities). Registration as a charity brings with it additional legal obligations and administration as well as tax advantages.
Athletics clubs or associations that are registered charities, or are considering registration, should carefully consider the availability of zero rating relief on any proposed facility development at the start of the project planning process.
Claims for VAT recovery/offset will be made on the club’s quarterly VAT return which must be filed online. HMRC may very well audit the return form if due to VAT recoverable on new facilities it shows a substantial repayment of VAT is due before making the repayment.
Planning and professional advice
With substantial projects and a potential 20% VAT on cost, planning to maximise VAT recovery well in advance of contract signature and taking professional advice where appropriate, is essential.
The law granting the relief
The construction of a building that is intended for use solely for a “relevant charitable purpose” may qualify under VATA 1994 Schedule 8 Group 5 Item 1(a) (ii). Relevant charitable purpose means use by a charity in either or both of the following ways:
(a) otherwise than in the course or furtherance of a business;
(b) as a village hall or similarly in providing social or recreational facilities for a local community.
This can be found in HMRC’s VAT notice 708 Buildings and Construction Sub- paragraph 14.7. Sports pavilions will usually generate income from sports clubs and community users so the relief under (a) will not generally be available.
In relation to the village hall relief, HMRC’s guidance states that a building falls within this category when the following characteristics are present:
- there is a high degree of community involvement in the building’s operation and activities; and
- there is a wide variety of activities carried on in the building, the majority of which are for social and/or recreational purposes (including sporting).
The guidance states that if none of the above applies to a building, it cannot be used as a village hall. However, the guidance goes on to confirm that a sports pavilion can be seen as being used as a village hall if the above characteristics are present.
For more information, help or advice please contact the legal helpline: 0845 050 8458 or email [email protected]