VAT Status of Clubhouses
There has been a change of policy by HMRC in respect of the VAT status of clubhouse buildings which may have a dramatic impact upon clubs currently building or planning to build new clubhouse premises.
Historically, HMRC have deemed that a clubhouse providing bar and catering facilities could be treated as being a ‘taxable’ activity of a club. This status was only questioned when the clubhouse was let for meetings or similar when the income was exempt from VAT (lettings for weddings, parties etc where bar and/or catering services are provided are subject to VAT as are lettings if the club has opted to tax the clubhouse).
The benefit of having this fully taxable status was that all VAT incurred on clubhouse-related costs could be fully recovered.
However, following several recent cases heard before the VAT Tribunal (notably Bridgemouth Golf Club and The Hurlingham Club), this position no longer exists. HMRC are now of the view that the clubhouse is a facility and advantage of membership of the club. As the playing subscription income received by not for profit sports clubs is exempt from VAT, HMRC are now of the view that the clubhouse relates to both taxable and exempt activities. This being so, where VAT is incurred on clubhouse costs it should be treated as an overhead cost and only recovered in full if the club is below the partial exemption de minimis limits in the relevant year. This will apply to costs such as utility bills, television subscriptions, furniture costs etc.
VAT incurred on costs relating to food and drink purchases, activities behind the bar and in the kitchen remains fully recoverable as it is wholly attributable to taxable sales.
Clubs particularly need to be aware of this new interpretation by HMRC when considering capital projects to either refurbish or build new clubhouse premises.