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Taxman refunds £1.8 Million to council for incorrect VAT charges on sports centers

The taxman has refunded a council almost £1.8million after they wrongly charged VAT on sports centres.

For 56 years, Parliament has set aside the Lee Valley for the “development, preservation and management [of] recreation, sport and leisure”.

After a tax case in the Upper Tribunal, the Lee Valley Regional Park Authority (LVRPA) has revealed it can add a windfall £1,792,298 to its day-to-day budget.

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The authority owns several high-profile venues including the Lee Valley White Water Centre in Waltham Cross, the Lee Valley VeloPark in the Queen Elizabeth Olympic Park, and the Leyton Ice Centre.

It also owns the Marina at Stanstead Abbotts, the Caravan Park at Dobbs Weir and the Lee Valley Leisure Complex in Enfield.

The windfall was revealed in a report for the authority’s executive committee, which is made up of councillors from across Essex, Hertfordshire and London, ahead of a meeting on Thursday, October 19.

The report suggests ways the council could use the cash.

“The authority currently has £25m of external debt in relation to the development of the new Ice Centre,” it reads.

The report notes spending the money on this project would only represent a short-term gain, and that other opportunities to use the funds “will be lost”.

It suggests the money would be better spent in the “operational budget” for 2024/25.

It adds: “It would be more prudent rather than to allocate the receipt to specific areas or schemes yet, that it is held, ringfenced within the general fund to allow officers and members to fully explore needs and priorities during the 2024/25 budget process.”

The £1.8m is a refund from HM Revenue and Customs (HMRC) and relates to leisure services provided by the LVRPA between April 2006 and March 2015, then April 2020 until March 2023.

Council leisure centres part of a ‘special legal regime’

The Lee Valley Regional Park Authority is one of several councils which could get a VAT refund from HMRC – which will go back into their budgets.

The nation’s tax authority originally suggested council leisure centres were business activities, not “public interest activities for the service of the community”.

Some councils across the country denied this was the case.

Three “lead case” authorities were chosen to challenge the HMRC.

These were Mid Ulster District Council, based in Cookstown, Northern Ireland, Midlothian Council, which is south of Edinburgh, and Chelmsford City Council in Essex for England and Wales.

In 2010, council officers in Chelmsford tried to claim back £0.9m in VAT overpayments for leisure services between 2006 and 2010.

HMRC rejected the claim, so Chelmsford took on the government department in the tribunals system.

After a 12-year battle, Mrs Justice Joanna Smith and Judge Swami Raghavan ruled in Chelmsford’s favour on June 12, 2022.

They looked at a European Union directive, which sets out local government groups should not be taxed if they act as “public authorities”, unless not charging VAT would distort the competition.

The Upper Tribunal decided councils’ leisure centres do not exist solely for commercial gain.

Instead, councils have “best value” obligations, a legal duty to promote healthy living, and a duty to look after the welfare of children.

“Perhaps the clearest example is the obligation under section 17 of the Crime and Disorder Act 1998 which is directly reflected in the policy theme of ‘crime and disorder’, which explained how sport and recreation programmes could promote social inclusion and diversionary activities to help reduce crime and vandalism,” the judgement reads, pointing to a local policy in Chelmsford to support justice through sports schemes.

It adds: “No private operator would be obliged to run leisure facilities in this way, or to have regard to the various considerations to which we have referred.”

Having lost the case, an HMRC statement reads: “The courts have found that local authorities’ leisure services are provided under a statutory framework and can be treated as non-business for VAT purposes.”

It adds: “HMRC has conducted a detailed analysis of the leisure services sector.

“We have found that allowing local authorities to treat their supplies of leisure services as non-business would not significantly affect competition.”

Councils can claim back their leisure services VAT through the HMRC.

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