VAT Partial Exemption and the COVID landscape

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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Many golf clubs will have seen a turbulent and uncertain year or so since the COVID pandemic struck. Not only may they have experienced pressure from members for fee reductions because the facilities were not available, but they will also have experienced a decline in the amount of VAT that can be claimed on costs because their taxable hospitality/food and beverage activities were shut down for longer.

HM Revenue and Customs (“HMRC”) has recognised the difficulties and introduced measures such as a reduced rate for food and non-alcoholic beverage sales and the controversial “Eat Out to Help Out” (“EOHO”) scheme last summer.

However, the issue over recoverable VAT was still a problem. With taxable supplies such as the bar and restaurant severely locked down (even when members could still play golf outside), until last month, the value of these supplies has sharply declined. This results in a lower taxable supply ratio for the purposes of recovering VAT on overheads.

Following representations from various bodies, HMRC agreed that partly exempt businesses would be unduly affected by COVID, because the taxable activities would be more severely impacted. As a result, they issued some guidance in Revenue and Customs Brief 4(2021) on applying for a temporary change to the partial exemption calculation which would allow recovery of VAT in line with pre-COVID years. Click here to view Brief.

So far, so good. However, the sting in the tail is that partly exempt businesses need to apply for this from HMRC and that part is not so straightforward.

The route to effecting the change is to apply to HMRC’s Partial Exemption Special Method (“PESM”) Team, providing HMRC with details of the projected recovery and real time calculations with documentation. The level of detail required is quite involved and some golf clubs may be put off applying because of this level of administration.

However, it may not be as bad as it seems. One of the suggestions from HMRC was to use the average of the last three years recovery percentage. To demonstrate this, a golf club would need to provide its previous three years’ calculations and also apply the average percentage to the current year figures. The other issue is the standard method override. This is a mechanism to stop a partly exempt business claiming too much VAT by using the standard method. Effectively, if the additional amount that is being claimed exceeds the higher of £50,000 or 50% of the input tax on overheads and £25,000, the application will be refused, and a business has to apply for a PESM that is tailored to its activities.

Assuming the standard method override does not apply, let us explore what using the average recovery from the last three years looks like in practice against what could be claimed if a golf club does nothing at all.

Sample figures for 2020-2021

Exempt income membership 2020-2021: £1,000,000

Taxable income 2020-2021: £100,000

Input tax directly relating to exempt supplies: £5,000 (refurbishment of changing rooms)

Input tax relating to taxable supplies (food/drink purchases/PPE for bar etc): £10,000

Input tax on overheads (common areas/all grounds maintenance etc.): £100,000

Total input tax incurred in year = £5,000+£10,000+£100,000 = £115,000

Previous 3 years recovery percentages: 21%, 17% and 25% (Average is 21%)

Please note, these figures are illustrative, more or less tax may be at stake.

Standard method recovery with no average recovery rate used
Taxable supplies/total supplies =£ 100,000/£1,100,000 = 9.09% (round up to 10%)
Input tax relating to taxable supplies £10,000 (fully recoverable)
Overheads relating to taxable supplies = £100,000 x 10% = £10,000
Total recoverable input tax = £10,000 + £10,000 = £20,000
Total irrecoverable input tax = £115,000-£20,000 = £95,000

Standard Method recovery using average recovery from last 3 years
Input tax relating to taxable supplies £10,000 (still fully recoverable)
Input tax relating to exempt supplies £5,000 (still irrecoverable)
Input tax on overheads relating to taxable supplies = £100,000 x 21% = £21,000
Total recoverable input tax = £10,000+£21,000 = £31,000
Total irrecoverable input tax = £115,000-£31,000 = £84,000
Total increase in recoverable input tax is £11,000 (10% of the total input tax)

Approaching HMRC

For any club, an increase of 10% recovery in a lean year is worth having a conversation with HMRC for! Appendix 2 in VAT Notice 706 provides a list of documents that HMRC like to see when considering a PESM, so it is worth looking at the list and framing a submission incorporating these where possible. The more information that is provided, the more likely HMRC will be to agree to a temporary change in method.

The good news is that, with a little care and advice, a golf club could benefit for an ongoing period of time from the change. Each application will have an end date, but this is likely to reflect the uncertain landscape of COVID and could cover 2021-2022 as well.

VAT is a complex area. If you have been affected by the above or have any queries, please get in contact with one of our friendly experts who will be happy to assist you on +44(0)330 024 3200 or

This article was written for the Golf Club Secretary newsletter.

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Ruth Corkin - Prinicipal - VAT and Indirect Tax Advisory at Hillier Hopkins

Ruth has been involved with VAT for over 30 years. She started her VAT career as a Customs and Excise Officer in Essex and then moved into consultancy with a variety of well-known accountancy firms. She is well known in the VAT world and is the proud author of many articles and technical works.

Contact Ruth at or on +44 (0)1908 713860

Based at the following office - Milton Keynes, Watford and London