claiming back VAT for fitness business

[IsobelH]

Hi, I hope someone can give me a bit of advice. My partner and I are about to start up a fitness training business, doing personal training etc. We always assumed we would be able to register for VAT in order to be able to claim VAT back on the rental of our premises. However I've just done some searching around to clarify if we'd have to charge VAT, and discover that exercise and fitness is exempt from VAT. I thought this was great news, until i read that because our whole business is to be fitness training, everything we 'sell' will be exempt, so we can't claim back VAT. Is that right? Because VAT on the property rental is quite a bit.. and due to be even more!

The article did talk about partly-exempt businesses being able to register, I am not sure if it might be possible for us to change the model slightly to be partly-exempt? Would this involve selling/supplying something that was liable for VAT? Can this be a very small part of the whole business?

This has rather altered our finance predictions so if someone could clarify that would be a great help :)
thanks!

[David Richards]

However I've just done some searching around to clarify if we'd have to charge VAT, and discover that exercise and fitness is exempt from VAT.Are you sure your services are exempt from VAT? It's not my area of expertise, but I was under the impression that the exemption only applied to sporting activities supplied by certain non-profit-making/non-commercial organisations (e.g. members' clubs and societies, etc).

[elainec100@cheapaccounting]

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000115#P84_8496

A list of activities that are exempt - but basic conditions have to be met.

[elainec100@cheapaccounting]

To answer the question:

As a VAT registered trader, you are entitled to deduct the input tax incurred on costs that you use or intend to use in making taxable supplies. You cannot normally deduct input tax incurred on costs that relate to your exempt supplies. If your input tax relates to both taxable and exempt supplies, you can normally deduct only the amount of input tax that relates to your taxable supplies.


I would check this with 3pic on here but if the rent is for exempt supply then it can't be claimed back but I am happy to be corrected on this.

[IsobelH]

now I'm not sure! :|

hmrc says that sport and recreation: exercise and fitness is VAT exempt.
but now looking more closely there seems to be a lot of pre-requisites, and complications! Some of it looks like we'd be exempt, others look 'standard-rated'. I thought this would be a straightforward yes or no type issue, but I guess I was wrong!

(I would post a link to the hmrc site page where it goes into detail about sport and recreation but it seems I've not posted here enough to do that yet...)

[David Richards]

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000115#P84_8496

A list of activities that are exempt - but basic conditions have to be met.Cheers Elaine, that's what I was thinking of - it's VAT Notice 701/45.

Further up the page it says in section 2.1 that, "exemption covers certain sporting and physical education services by eligible bodies" then in section 3.1 it says, "Your organization’s services are exempt only when all the following conditions are met.

Your organization has activities included within the meaning of "sports and physical education"
It supplies services that are closely linked with and essential to sport or physical education
It supplies services to an individual, except, where the body operates a membership scheme, an individual who is not a member
It is an eligible body

And finally section 4 defines an 'eligible body':

it is non-profit making; and
its constitution includes a non-distribution clause or limits its distribution to:
- another non-profit making club; or
- its members on winding up or dissolution; and
it actually uses all profits or surpluses from its playing activities to maintain or improve the related facilities or for the purposes of a non-profit making body; and
it is not subject to commercial influence

As it's a commercial business, it seems to fall outside the exemption rules.

[IsobelH]

that's the link I couldn't post! :)

so if I'm understanding right we have to meet this criteria to be exempt:
Your organization has activities included within the meaning of “sports and physical education”
exercise and fitness, so yes to that.

It supplies services that are closely linked with and essential to sport or physical education
it says 'coaching', so yes, but it also says "Sports coaching by professionals is not within the exemption as it is not supplied by an “eligible body” "
is personal training the same as sports coaching?

It supplies services to an individual, except, where the body operates a membership scheme, an individual who is not a member
we will be doing this: "if your club operates a membership scheme, you must supply the services to individuals taking part in the activity, who are members of the scheme and whose membership is for at least three months;"
so I guess we are exempt under this category...?

It is an eligible body
ok this seems to be the big thing... because it says an eligible body is non-profit. Which is not us, obviously! Which suggests this applies:

"Every time you make a sports supply, you must decide whether you are under commercial influence. If you are under “commercial influence” you are not an eligible body (see section 4 above) and your sports supplies are standard-rated."

which means.... we are not exempt, but are standard-rated? So we would be able to claim back VAT, but in registering for this would have to pay VAT on all of the money we are paid for memberships? So the question then becomes weighing up the benefits of claiming money back compared to the losses of having to pay 20% of all membership fees to VAT?


Can someone confirm that I've reasoned that correctly? :)

[IsobelH]

hehe it took me so long to think all that through you got there first! And I guess my reasoning is right after all. Thanks! :)

[spidersong]

I'm afraid it may be time for a spanner in the works.

You say you're providing sports training as your business, and above we seem to have reasoned correctly that you're not covered by the sporting exemption (not being an eligible body).

However if you're providing training the sporting exemption isn't the only one that may apply, there's also an exemption for education that has different criteria. Although there is an eligible body criteria for education, there's also a criteria for education by sole proprietors and partnerships.

You may want to see sections 5 and 6 of notice 701/30 http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000117&propertyType=document#P183_12306
(5.2 is most relevant in section 5)

Basically if you are a sole proprietor or partnership, then if you supply education that may be found in a school or university (and I certainly remember hours of depressing Physical Education in school) your supply will be exempt from VAT. So if your business is purely training then you may be fully exempt, if its training and access to equipment (i.e. a normal gym) then you're partially exempt. You can avoid this complication by becoming a limited company, as eduction by limited companies is only exempt under specific funding streams that are unlikely to apply here, or where you're a not for profit organisation. Of course becoming limited gives other issues to consider in compliance, corporation tax, employment status etc. so would need serious consideration before making such a leap.

Sorry about the spanner, but better now than after you've registered, recovered lots of VAT, and then receive a visit.