The Upper Tribunal (UT) has decided that an operator of gyms made a supply for VAT purposes when it recovered late paid fees from members who had stopped paying those fees monthly, even though the taxpayer denied those members gym access until they had paid all arrears. Therefore, the UT allowed HMRC’s appeal against the First tier Tribunal’s decision that the late paid fees were non-vatable compensation and the taxpayer could not claim repayment of overpaid output tax on those recovered fees.

The UT decided that the monthly payments were consideration for the taxpayer’s supply of the right to enter the gyms and use their facilities and services for a minimum period, rather than consideration for the actual use of the facilities. This was so whether they were paid monthly (on time or late) or as a lump sum in advance. It was clear from the membership contract that the fee was payable for the duration of the minimum period, regardless of actual use.

The UT also concluded that the taxpayer’s denying access to the facilities if a member failed to make a monthly payment on time did not break the link between the payments and the services supplied during the months in which monthly fees were paid on time and access was allowed. The same analysis applied if the taxpayer recovered unpaid fees after the end of the minimum period, in which case, the payment was also late payment for services that had been supplied during that period.


The UT’s decision reflects the economic reality of the contract between the gym and its members and highlights the importance, when determining the VAT treatment of arrangements, of considering the reality of the situation and not just the strict contractual or legal position.

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