Health clubs ‘could be owed thousands’ in VAT payments

A little known amendment to taxation laws means UK Health clubs could be entitled to reclaim thousands of pounds worth of VAT on their current membership offering.

That’s according to VAT consultancy rbcVAT, which says changes to the ‘701/5 Clubs and Associations’ Public Notice allows gym owners to reclaim VAT paid on memberships with credit on monthly payments.

Ryan Bevan, director of VAT Compliance Services at rbcVAT, says the amendment doesn’t apply to “pay as you go” or “rolling no contract” memberships, but adds that reclaiming the VAT from up front payments has proved lucrative for a number of operators. Health and fitness facility management company 3d Leisure recently announced that it had saved its clients £701,868.80 over a period of three years as a result of reclaiming.

As an example, a member paying one year’s membership may pay £500 if they pay up front, whereas a member paying monthly would pay £50 per month, equating to £600 per year. The difference between these two sums is classed as a “finance charge.” Amendments to the Public Notice have declared that this charge is exempt from VAT, providing health club owners with the opportunity to reclaim this “overpaid” VAT.

The Public Notice has undergone three amendments since 2004, and is supported by HMRC manuals, with VATFIN3170 stating: “Where an organisation allows members the option to defer payment of membership fees or subscriptions for an additional fee, the additional fee charged over and above the membership fee or subscription is consideration for an exempt grant of credit under Group 5, item 2.”

Bevan added: “The constant revision of Group 5, Schedule 9 to the VAT Act 1994 has demonstrated a fairer VAT payment system for health clubs offering their members monthly payments. The saving to the industry is significant.”

VAT exemption reclaims can be applied to VAT periods retrospectively, with a four-year cap from the current VAT period in which the disclosure is being made. Typically, the process takes around three-six months to complete and, according to rbcVAT, does not involve major audits from HMRC.