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30 Apr 2008 : Column 136WHcontinued
The Financial Secretary to the Treasury (Jane Kennedy): It is a pleasure to be here this afternoon under your chairmanship, Mrs. Anderson. I should say to the hon. Member for North Wiltshire (Mr. Gray) that I would normally have agreed a way forward, but I am a servant of the House on this occasion.
I congratulate my hon. Friend the Member for Central Ayrshire (Mr. Donohoe) on securing this debate on an important issue relating to local sports provision. I am aware of the importance that he and many other hon. Members attach to the issue. A debate such as this enables me to take a step back from what is a complex, technical issue, on which HMRC has clear rules that it must applythey are not subject to ministerial influence because they relate directly to tax and case law.
I am alive to my hon. Friends concerns. Indeed, my hon. Friend the Member for North Ayrshire and Arran (Ms Clark) has written to the Chancellor of the Exchequer on the matter and a reply is being considered. I want to think about, and take into account, the points that have been raised in the debate before advising on how to reply to the letter.
It is worth putting on record that, clearly, access to good quality sporting provision is an essential part of enabling people to lead healthier lives and to participate in sport. My hon. Friend the Member for Central Ayrshire was right: the 2012 Olympics can, as I believe they will, provide a major catalyst for increased sporting participation in the UK and overseas. In the run-up to the games, the Government will work to support more people to lead a more active lifestyle. On matters over which we have responsibility, we will continue to promote sport, including at school, community and elite levels.
A number of reliefs already apply and the Government have an excellent record of promoting community sports through the tax system. For example, we have allowed community amateur sports clubs that meet certain eligibility criteria to benefit from a range of tax reliefs. Charitable sport and leisure trusts are exempt from tax on most forms of income and gains, including capital gains tax and stamp duty. Charities also receive a mandatory 80 per cent. relief from business rates and benefit from a range of tax incentives for individual and corporate donors, such as gift aid and payroll giving.
Mr. Gray: I wanted to address precisely that point. Why should leisure trusts, which are not necessarily well run, have tax advantages over those places in large parts of England where the local authority has privatised the provision of leisure services? Private companies do not get the tax advantages that the Minister described, but they provide precisely the same facilities for local people.
Jane Kennedy: The hon. Gentleman makes a
Mr. Donohoe indicated dissent.
Jane Kennedy: I can see my hon. Friend shaking his head, but the hon. Member for North Wiltshire makes a correct point. It is for precisely that reason that the scope for discretion within which HMRC can move is limited by European Union law, which makes clear how VAT should be applied.
My remarks on VAT are quite technical: I will state the position as it is. I should like to read the Hansard report of this debate slowly and consider the points that my hon. Friend made, and I hope that he does not think that I am simply dismissing what he said with technical detail.
The fundamental principles of VAT, including the application of reliefs and exemptions, are governed by the European VAT agreements that have been signed by successive Governments, as I said. Those agreements and the UK legislation that implements them are interpreted and applied through case law. That assists in determining the correct tax treatment of certain transactions that could be seen to comprise a number of components because more than one benefit is received in return for a single payment. In some circumstances, when a number of components to a transaction are found, the payment made can be apportioned to reflect the different VAT treatments that are applicable to the different components.
However, as I am sure my hon. Friend knows, the Court of Session confirmed in the case of the Highland Council that unlimited access to facilities in a leisure centre, typically in return for a monthly or annual payment, is a single supply with one componentthe right to unlimited use of leisure facilities. As has been said, sports and leisure facilities often have cosmetic, sauna and steam facilities, as well as sporting facilities.
I accept that the debate is linked to the campaign that was to some degree initiated by SpoRTAmy hon. Friends in Scotland will be aware of the impact of the case. The supply of sporting services is exempt from VAT when it is supplied by a non-profit making organisation such as a charitable leisure trust. That is provided for by our European VAT agreements. However, the Court of Session confirmed HMRCs long-standing policy that fees that grant unlimited access to both sporting and non-sporting facilities in a leisure centre are a single supply of the right to use the facilities. That means, for example, a season ticket or other fee that entitles customers to use sports facilities, which are exempt, and non-sports facilities such as saunas and spas, which are standard rated for VAT, is a single, standard rated supply of the right to use general facilities. Unfortunately for the institutions concerned, VAT is due on the whole of the fee that they charge. That remains the case even though some of the facilities in the overall package would be VAT exempt if charged for separately.
Historically, many leisure trustsincorrectly, and contrary to HMRCs position; the argument has been going on for some timehave treated such supplies as wholly exempt or apportioned income between sporting and tuition, which are exempt, and non-sporting facilities, which are standard rated. HMRC is required to collect VAT due on those supplies. Not to do so would bring it into breach of European agreements. HMRC would fall foul of the law, and it
would be perfectly within the rights of an organisation that was not a leisure trust but provided the same facilities to go to court to seek justice for unfair treatment. I appreciate that my hon. Friends understand that, but my hon. Friend the hon. Member for Central Ayrshire seeks more discretion in how that interpretation is applied.
Danny Alexander: The Minister is right to describe the position laid out by the Court of Session in relation to Inverness leisure trust and the Highland council in my constituency. However, a bit of discretion might be applied. Many leisure facilities have chosen to change the bundle of goods available in their weekly or monthly passes to include only VAT-exempt services. The issue therefore relates to VAT that may be due on tickets sold in the preceding three years. Can she consider whether discretion could be exercised over whether HMRC claims the backdated VAT? That is what will have the most damaging effect on leisure trusts such as Inverness leisure trust, which would be faced with a bill for many hundreds of thousands of pounds, which would make it effectively unable to carry on providing its services at the present cost.
Jane Kennedy: If the same range of disputes occurred in a sector of British business after a court case had determined how the VAT law should be applied, there would be a period of negotiation between the private companies involved and HMRC about how the tax liability should be paid. HMRC does not have the discretion simply to waive the tax. What is happening is a precisely similar set of negotiations, or at least a similar application of the rules, to what would be found anywhere else in the business world.
It is not possible for HMRC to respond to the case being made on those grounds. It is possible that the case could be made elsewhere in Government. I shall consider that in responding. It is possible that such institutions could make a case for help somewhere else, given the circumstances that now apply as a result of the work that HMRC is required to do in response to the court case. As I said, I would like to be helpful to my hon. Friends and other Members. I understand the difficulties faced by some of the institutions involved, but they have known about it for some time. The organisations to which the hon. Member for North Wiltshire rightly drew our attention have a case, and HMRC can respond to the situation only as the law permits. It must apply the law as passed by Parliament and applied by the courts. It has no statutory authority not to collect tax that is properly due.
The commissioners of HMRC may make concessions in certain limited circumstances, but those circumstances are extraordinarily limited. There is little that I can do as Minister. I have no powers whatever to invite HMRC to take any action other than the one that it is taking, but I have been in discussion with HMRC for some months now, since representations were made and SpoRTA drew to the publics attention its members concerns about the court case. My hon. Friend the Member for Central Ayrshire is right that there is cause for concern. We must consider what is best to do in the circumstances. I am not necessarily the Minister who can offer that, and I certainly cannot commit other Ministers to do it, but the point being made is genuine and valid.
It is a serious matter. I am grateful to my hon. Friend for bringing it to my attention and allowing me the opportunity to consider the issues in detail. Representations about VAT have been made to me and to my ministerial colleagues by hon. Members and leisure trusts and their representatives. The brief issued last July by HMRC as a result of the court caseit is called, surprisingly, a Revenue and Customs briefreflects HMRCs long-held position on the issue, and therefore has not changed the application of VAT rules in those circumstances.
Mr. Donohoe: If it is the case that guidelines were issued just last year, why is HMRC going back three years and not six or nine years? The issue involved a lot of confusion, as has been conceded. Why has the VAT been backdated at all? I do not get why it needed to be, given the confusion around the subject.
Jane Kennedy: I have tried to explain that it is a long-standing position of HMRC. The trusts clearly disagreed and continued to apply their own interpretation, which was a somewhat risky venture, as it then fell to a court to determine the outcome, and the court upheld HMRCs position. The brief was a response to the court case. It is not the case that HMRCs view of the tax liable was unknown, or that the organisations were not aware of it.
Mr. Donohoe: I have a simple question: where did the three years backdating come from? How was it determinedby Ministers, or within HMRC?
I think that I am right in saying that normally, such an approach would relate either to the point at which the dispute began or the point at which
the court case was undertaken. Often, such things are negotiated with the organisations. [Interruption.] I am inspired. It is a general assessment of a time limit when such an application will be made. Three years is not unusual. HMRC cannot simply write off the foregoing period during which tax liability was being disputed. Three years is normal in the circumstances, but as I said, negotiation often takes place between the businesses affected and HMRC about how to make the repayments. I am sure that such negotiations are taking place.
Danny Alexander: The Minister helpfully said that the commissioners of HMRC have very limited discretion in such matters. I encourage her to encourage the commissioners to consider whether they can exercise their limited discretion in this matter.
Jane Kennedy: I have had a number of conversations with HMRC about the matter. Because of todays debate, we will consider the issues again, but I do not believe that HMRC is in a position to do what the hon. Gentleman asks. I do not believe that it has the discretion being sought. Its hands are therefore tied in how it applies the tax, but that does not mean that I do not acknowledge that there is a problem for some organisations that have in some cases grown out of community sports clubs in exactly the way that we want to encourage, as my hon. Friend the Member for Central Ayrshire pointed out in his opening comments.
There are HMRC concessions under which VAT due will not be collected
It being Five oclock, the motion for the Adjournment of the sitting lapsed, without Question put.