Reform Club loses VAT case

THE VENERABLE and exclusive Reform Club of London’s Pall Mall has lost a VAT dispute at the first-tier tax tribunal.

The issue stems from the annual subscription paid by its members, which includes a basket of benefit and privileges some of which, if supplied individually, would be zero rated for VAT purposes or VAT exempt; others of which would be standard rated.

In normal circumstances, where it can be shown the principal benefit of a subscription is subject to VAT, any ancillary benefits would also be subject to the levy. However, in the case of non-profit-making organisations such as the Reform Club, HMRC has publicly set out an extra-statutory concession.

The difficulty with the concession is not in understanding it or its purpose, but in arriving at a satisfactory basis for apportionment which is fair and reasonable, the tribunal heard. Both the club and HMRC accepted it is not something that can be determined by the application of a precise arithmetic formula but instead involves an element of judgement and balanced fairness.

From 1998 the club used what was described as a “floor space-based apportionment method”, which it had agreed with HMRC.

In 1998, 54.72% of the subscription was treated for VAT at the standard rate, but the club has almost doubled in size since then.

As such, the club took the view that the method of apportionment no longer amounted to a fair and reasonable apportionment and proposed that it should change the methodology so as to exclude from the overall floor area the restaurant and the bedrooms on the basis that they generated fee income on which VAT was charged separately. By excluding those floor areas the percentage of the subscription that would not be subject to the standard rate of VAT would increase significantly, and it put in an error-correction claim for the period to 30 September 2013.

The club contended this is “no longer a fair and just reflection” of the true position and should be adjusted in its favour. It added that the existing methodology is flawed and unfair because it involves double-taxation.

However, the tribunal threw out the case, noting that through the subscription, members gain access to ‘free’ facilities, such as use of the library, smoking room, cardroom, billiards room various changing rooms, squash courts and toilets, while other facilities such as the bedrooms, dining rooms and coffee rooms require payment and as such are not covered by the subscription fee.

In summing up, judge Geraint Jones QC said: “In our judgement this is no different to the situation where a person pays a fee – on which VAT is paid – to enter a country park or a country house and then whilst at the park or in the country house chooses to purchase a meal or some souvenirs, which, being separate supplies of goods or services which attract VAT at the standard rate, will involve that person paying more tax. That is not double taxation; it is separate taxation for separate identifiable supplies.”

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