HMRC continue shaping up the rules and regulations. With the recent MTD adaptation, IR35, HMRC are now emphasising VAT on children’s holiday clubs. There are many confusions around VAT as there is no clear instruction for a specific industry. The accountability gets really complicated especially when taxable supplies fall into multiple categories. The government has announced that it will provide additional funding to local authorities to coordinate holiday clubs for children in 2021.
This will result in many businesses opening holiday clubs, and it is very important to know the countability. Many businesses have been fined for their wrong accounting treatment. Following a recent first-tier tribunal case HMRC has clarified its stance on the VAT treatment of children’s holiday camps. RSR Sports Limited (TC07453) ran holiday camps for children over the school holidays. RSR initially treated these services as standard-rated for VAT, but later decided that they were in fact exempt welfare services under VATA1994 Schedule 9 Group 7 Item 9. RSR, therefore, claimed a refund of the VAT charged. HMRC refused the refund on the basis the holiday camps did not qualify as welfare. RSR requested a statutory review, but this was found in favour of HMRC. Undeterred, RSR took their case to the FTT.
The exemption
Item 9 of Group 7 VATA 1994 requires that to qualify for an exemption, two conditions must be met. The first, relating to the type of entity, was unquestionably met due to RSR being an Ofsted regulated business (Item 9(b)). The second condition required the supply to be of ‘welfare services and connected goods. This was the main point of disagreement in the case: could the activities of RSR be considered as ‘welfare services’? The legislation provides clarity as to what it considers welfare services. Of the definitions given, only one could apply to the services of RSR, namely the care or protection of children and young persons.
FTT decision
The FTT examined the facts and concluded the holiday camps operated by RSR included both an activity (standard rated) element and a childcare (exempt) element. They considered whether this represented two distinct supplies and concluded that they were, in fact, a single composite supply. This meant that the entirety would be subject to a single VAT rate, based on which of the supplies was predominant. RSR and HMRC agreed with the above conclusion, but of course, disagreed as to which element was predominant. The FTT, therefore, delved further into what was involved in the provision of the holiday camp experience. They considered the role played by staff at the camp and determined that they acted in a purely supervisory capacity. The staff in question did not hold qualifications in coaching or teaching. It could not, therefore, be reasonably expected that they would play more than a passive role in the activities.
This was contrasted with other supplies made by RSR, including after-school clubs, which were treated by RSR as standard-rated supplies. Whilst these were not the subject of the appeal, they served to highlight the differences between the supplies. It was noted that the after-school clubs were more focused on improving skills. Further, the amounts charged, qualification levels of the staff and their hourly wages were considerably higher than for the holiday camps.
The FTT noted that the camp activities were not required to meet any standards by an external body. Therefore, the parents could not reasonably have an expectation that their children would be improving their skills at the activities.
The FTT concluded that the predominant supply was therefore that of child welfare, with the other aspects being ancillary. RSR were correct to treat the entire ‘holiday camp experience’ as exempt and the appeal was allowed.
HMRC published Brief 18(2020) to address the above findings. This confirms that any supply like that of RSR and exhibiting the same key features as noted above, specifically:
- staff acting in a supervisory rather than active role
- a lack of requirement for teaching qualifications
- a lack of external standard-setter for the activities
- with any other aspect being ancillary
will qualify for the exemption.
How can we help
We can make sure that your taxable supplies are correctly declared. We will be taking this stress from you by implying the correct rule. We will assist you with the whole process including communicating with HMRC, as well as calculating your tax affairs for the previous years. Our experienced experts will give you complete peace of mind and comply with HMRC guidelines to minimise your tax liability as much as possible. We have a huge success rate in this sector and hence we are confident that we can help you to comply with HMRC correctly. If you believe you made an error in the previous four years, then please contact us. We can sort this on your behalf and bring your book up to date with HMRC.
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Written By Kazi Ashraf