VAT & Single Supply

The First-tier Tribunal has dismissed an appeal by Next Generation Clubs Ltd, operator of the David Lloyd leisure club group, over whether its membership subscriptions qualified for the temporary reduced rate of VAT introduced during the pandemic to support hospitality and tourism.

The claim centred on an error correction notice covering the period from July 2021 to March 2022, when a 5% reduced rate applied to certain supplies. David Lloyd argued that its leisure club memberships fell within the category of cultural facilities covered by that relief, placing its offering alongside things like museums and amusement parks.

The Tribunal disagreed. It found that the broad range of facilities on offer, spanning gyms, swimming pools, children's activities and co-working space, amounted to a single supply of services rather than several distinct elements. Having reached that view, the Tribunal then had to characterise what that single supply actually was. It concluded the clubs were providing sporting facilities, not cultural facilities, and that sporting facilities were never within scope of the temporary reduced rate. The comparison to museums and amusement parks failed because the legislation drew a clear line between cultural and sporting provision, and David Lloyd's offering sat firmly on the sporting side of that line.

The result is that the membership subscriptions remained standard rated throughout the relief period, and the error correction claim was rejected in full.

This case is a useful illustration of how single supply characterisation can determine the outcome of a VAT relief claim before the substantive rate question is even reached. Businesses with mixed facilities, whether in leisure, hospitality or wellness, should be cautious about assuming that one favourable element of their offering (such as a cultural or educational component) will carry the whole supply into a lower rate.

Tribunals will look at the dominant nature of what is actually being provided.

For businesses that made similar claims during the temporary reduced rate period, or that operate mixed-facility models with any element of doubt over rate treatment, this decision is a reminder to revisit the underlying analysis. VITA regularly advises on single and multiple supply questions and on reduced and standard rate boundary disputes.