Club Briefing
VAT
Questions & Answers for Club Treasurers
The purpose of this document is to assist Gliding Club Treasurers with some of the features and common pitfalls of Value Added Tax as it affects our sport. We all think we have some idea of the operation of VAT. Much of the rest of our knowledge is “handed down” by our predecessor or we try to copy what was done before. This mechanism unfortunately perpetuates many myths and mysteries. Disclaimer Neither the author of this document nor the British Gliding Association is qualified or insured to give tax advice. Guidance is given here in general terms. Should the reader be persuaded to take some course of action (or inaction) as a result of any statement herein they should take appropriate professional advice so far as they may not be absolutely certain of the legal position. Please advise any errors, misstatements or corrections to the BGA Treasurer.
Common Questions...
What do I need to know about VAT? Should we register for VAT? Please explain ”Partial Exemption” and what input tax can be recovered. What pitfalls are there regarding corporate days, trial lesson customers and visiting pilots? What should I know about buying or disposing aircraft and equipment? Should we deregister for VAT?

VAT: Questions & Answers for Treasurers

Q: What do I need to know about VAT?
A: The first thing that you need to know about
VAT is that there are significant escalating penalties for getting it wrong – even if the errors are in HMRC's favour.
The body of VAT legislation is large and complex so it is unlikely that the average person will have sufficient knowledge of the rules to be able to undertake even the simplest accounting tasks for a VAT Registered club.
If you are new to VAT then you may be able to pick up some of the basics from what has been done by your predecessor. Do this with caution as they may not have been doing things correctly! If you have professional advisers then they may be a source of information and advice.
In order to understand the basics of VAT then there is really no short cut do studying the rules. A primary source of information is the VAT Guide published by HMRC.
Introductory information can be found in Notice 700/15 The Ins and Outs of VAT and Notice 700/21 Keeping records and accounts. If you find this all too soporific then a number of training centres run day courses which cover the basics.
This note assumes that you have an understanding of the basics of VAT and is primarily intended to explain special rules of VAT affecting gliding and, particularly, areas of common mistake.
The VAT Notices:  Sport explains how the provision of sporting
services is exempt from VAT.  Partial Exemption covers the rules where you
supply goods or taxable services in addition to exempt sporting services.  Additionally the Notices Buildings and construction and Capital Goods scheme may be relevant if you are buying or selling land, buildings or expensive aircraft.

Q: Should we Register for VAT?
A: It is compulsory for individuals and organisa-
tions to Register for VAT if their Taxable Turnover (sales) exceeds or is expected to exceed the Registration Threshold. There is a very short time limit by which you need to apply for registration and penalties apply for failure to do so.
It should be noted that the provision of sports services is Exempt from VAT and therefore should be excluded when working out your total Taxable supplies.
In certain circumstances it may be advantageous for you to register voluntarily if your supplies are less than the compulsory threshold. This will be if you carry out (for example) trial lessons for agencies who require a VAT Invoice or where you have outputs which are zero or lower VAT rated (publications, agricultural produce) and you wish to recover the VAT on the standard rated inputs relating to these sales.

Q: Please explain ”Partial Exemption” and Q: What pitfalls are there regarding corpo-

what input tax can be recovered

rate days, trial lesson customers and visit-

ing pilots?

A:It is a common mistake that sports clubs apply the

partial exemption calculation much too widely to the A: One of the conditions which qualify a non-profit

goods and services they purchase.

making club to provide a sports service as being

The provision of sports (gliding) services is exempt

exempt from VAT is that: “It supplies services to an individual, except, where

from VAT so that normally you cannot recover any the body operates a membership scheme, an indiVAT whatsoever on your purchases of equipment, vidual who is not a member”

fuel, maintenance and other goods and services

exclusively incurred for the exempt activity. Only sports services are exempt – the supply of

A problem that clubs face with this is that a “member” is defined as a person “whose membership is for at least three months” so that day mem-

goods (sports equipment etc.) is taxable.

bers such as trial lesson customers or visiting pilots

from other clubs are classified as being chargeable If you have a bar, canteen, shop selling sports goods to VAT on their flying fees and other payments. or other taxable supplies then you can recover 100%

of your input tax on purchases exclusively related to Many clubs offer 3 months membership (from the

these activities.

date of flight) inclusive with trial lesson fees to moti-

Sometimes it may be difficult to allocate purchases between your exempt sales and your taxable sales. In this case you can use the calculation explained in

vate visitors to return for further pilot training. This practice would seems to meet the 3 month requirement and so avoid the need to charge VAT.

VAT Notice Partial Exemption to calculate the recov- In the same way, the provision of not less than 3

erable fraction of your input VAT.

month “free” reciprocal membership to visiting pilots

from other clubs should be considered.

This may occur where, for example  where some income from your flying fees is tax-
able such as where the sports participant is not a club member (or is a short term membership category of less than 3 months)  you have heating or other bills for a club house which also incorporates a bar or canteen.

In the absence of a “free” reciprocal membership agreement with the other club then such pilots would be asked to pay a daily fee in addition to their flying fees for the provision of those sports services which would normally be covered by a full membership subscription.

The Partial Exemption fraction applies only to purchases.
Sales are either wholly exempt or wholly taxable. The only exception to this is where there is a compound supply where for instance a membership subscription might include a “free” magazine. If you have recovered any VAT whatsoever (even a very small fraction under the Partial Exemption calculation) when you buy an aircraft or other capital equipment then you must charge Standard Rate VAT in full on the value when you sell the asset or de-register for VAT.

Individuals, works outings, hosted BGA courses and
the like...
VAT Law has recently been corrected to conform to
European Law (after the Canterbury Hockey Club
judgement) so that it is now possible for a corporate
body to purchase exempt sporting services from a club provided that “the true beneficiaries are individuals taking part in sport”. The beneficiaries would
of course, also have to qualify as 3 month “members” for the exemption to be permitted.

Q: What should I know about buying or disposing aircraft and equipment?
A: A club will normally have to pay Standard Rate
VAT to the supplier when purchasing a sports asset (aircraft or other flying related equipment) unless they are purchasing it from a private individual, an unregistered club or where it is purchased from another club who have already accounted for it as a wholly exempt asset.
The club purchasing the asset may intend to use it for wholly exempt purposes and will therefore not be able to recover any of the “Input” VAT paid.
The club may intend to use the asset partly for exempt sporting purposes and partly for taxable supplies (such as for trial lessons taken by “under 3 month” temporary and non-members or let out for commercial hire). In this event the club can optionally recover a fraction of the Input VAT under the Partial Exemption rules.

When calculating the amounts for a VAT Return period (and the Annual Adjustment) which includes a purchase or disposal of an asset , you should remember to include the VAT relating to the asset in the VAT figures. However you must exclude the goods value of the asset when calculating the Exempt Fraction so as not to distort that fraction.
Q: Should we deregister for VAT?
A: Clubs may voluntary cancel their VAT Registration
if their Taxable Supplies (sales excluding exempt services) fall below the deregistration threshold.
If clubs cease making taxable supplies (continuing only to supply exempt services) then cancelling Registration is compulsory.
The de-registration process is usually simple. You notify HMRC using Form VAT 7. Once they have confirmed the date of the cancellation of your VAT Registration you complete your final VAT Return up to that date.

When you come to sell the asset or if you deregister

for VAT you will have to account to HMRC for the full Your final VAT Return will account for your Inputs

amount of standard rate VAT on the whole of the

and Output VAT as usual but calculated in the same

proceeds (or valuation on deregistration) of the asset way as your Annual Adjustment (i.e. covering the

if you have recovered any of the VAT on the original period from from the date of your last Annual Adjust-

purchase.

ment up to the date of cancelling your registration

less any VAT already accounted for).

For example if you sell an asset for £30,000 you will

need to pay £5,000 VAT to HMRC (VAT Rate 20%) even although you may only have recovered an exempt fraction of a few hundred Pounds on the original purchase.

Additionally you need to account for VAT on your stocks of goods for resale, stocks of consumables (fuel etc.) and your capital assets as though your VAT Registered self had sold these items (at cost or

If you wish to dispose of the asset and not charge VAT on the proceeds then you have to demonstrate that you did not recover any VAT on the original purchase. For this reason it is essential to retain the purchase invoice, accounting records and/or other documentary evidence that no VAT was reclaimed.

valuation) to your VAT unregistered self at the point of the cancellation of Registration. There is a deminimis that if the VAT payable on the stocks and assets is less than £1,000 then they need not be included on the Return. See here for further information.

In the event that you did recover a fraction of the Input VAT (or all of it in the toothbrush era) and the amount recovered is less than the Output VAT on the proposed disposal then you could review the usage of the asset or decide that for whatever reason your original claim was an accounting error and repay the VAT using the VAT Return corrections procedure.

The single biggest problem facing clubs will probably be accounting for VAT on their capital assets which is discussed here.

Alternatively under the VAT Capital Goods Scheme it may be possible to change the usage classification of an aircraft to being fully exempt (repaying the VAT previously claimed) where the change of use takes place on or after 1 January 2011 and the aircraft has been purchased within 10 years and at a cost at least £50,000.

Please send any comments or queries to treasurer@gliding.co.uk"

Edition 1 November 2010

© British Gliding Association