The Value Added Tax (Sport, Sports Competitions and Physical Education) Order 1998

Explanatory Note

(This note is not part of the Order)

This Order applies to services supplied on or after 18th March 1998 and introduces a definition of “non-profit making body” into Group 10 of Schedule 9 to the Value Added Tax Act 1994 (c. 23). Group 10 exempts from VAT certain supplies relating to competitions and sports and physical education. This group implements Article 13A(1)(m) of EC Directive 77/388/EEC (OJ L145, 13.6.1977, p. 1) (the Sixth VAT Directive), which requires member States to exempt supplies of sporting services by non-profit making bodies, but to tax such supplies made by commercial bodies.

Article 3 of the Order inserts Note (2A) which provides that a body shall not be treated as a non-profit making body if it is subject to commercial direction.

Article 4 inserts Note (2B) to the Group which defines a “non-profit making body”. Note (2B) applies to services which are supplied on or after 1st January 1999. It limits exemption to supplies by bodies which cannot and do not distribute any profit which they make and use any profits made from their sporting activities for the continuance or improvement of the related sporting facilities. This implements the first indent of Article 13A(2)(a) of the Sixth VAT Directive.

Article 5 inserts Notes (4) to (7) which attach conditions and provide definitions to the exclusion from exemption of supplies which are made by bodies which are subject to commercial direction. These Notes, which apply to services supplied on or after 18th March 1998, implement the obligation in the preamble to Article 13A(1) of the Sixth VAT Directive for member States to make the grant of exemption subject to conditions for the purpose of preventing evasion, avoidance or abuse. They also implement the second indent of Article 13A(2)(a) of the Sixth VAT Directive, which permits member States to limit exemption to supplies by bodies managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest, either themselves or through intermediaries, in the results of the activities concerned.

Note (4) to the Group defines the circumstances in which a body will be considered to be subject to commercial direction and which will lead to the loss of exemption from VAT. This is where the body has arranged to purchase certain defined supplies from, or to pay emoluments to, an officer, shadow officer, intermediary or connected person.

Note (5) defines the type and time of the supplies and emoluments and the commercial relationship between the club and its officers, the intermediary or the connected person, in relation to which Note (4) will cause the loss of exemption.

Note (6) adopts the definition for “connected persons” used in Section 839 of the Income and Corporation Taxes Act 1988 and provides for the time of the connection to which Note (4) applies.

Note (7) defines an “officer” or “shadow officer” of the club and an “intermediary” for the purposes of the definition of “relevant person” in Note (5).