*Update – November 2020*: HMRC has now issued Revenue and Customs Brief 18(2020) which describes when they will accept that holiday clubs run by other organisations that are also regulated (e.g. by OFSTED or the CQC) qualify for exemption. In their view, to qualify for exemption, members of staff should merely be supervising activities, should not hold any coaching or teaching qualifications, and should not be providing activities to an external standard. Any activities should be “merely an adjunct to the essential service of childcare”. Providers who meet these conditions may be able to reclaim VAT overpaid in the last four years without risk of further challenge from HMRC.

The First-tier Tribunal (FTT) has released its decision in this case (TC07450) concerning whether services provided by RSR Sports Limited (RSR), as operator of school holiday camps, were exempt as services closely linked to the protection of children and young persons and supplies of welfare services.

While on the face of it this might not appear to have an immediate impact on the not for profit sector as it relates to the provision of welfare services it may impact a number of charities. Moreover, there are an increasing number of charities, especially sporting charities, that provide camps or daycare for young persons and it may be valuable for them in determining what the appropriate VAT treatment of their supplies might be.

More generally, however, I think that there is always value in evaluating and re-evaluating your composite supplies, especially if they evolve to meet the expectations of your customers/those who you are supporting. As you will see from this case the determination as to whether RSR where making a single exempt supply or a single taxable supply were quite evenly balanced and, as a result, the decision is really helpful in setting out the determining factors in deciding what character a particular multiple supply might have. I have set out the details of the case below.

RSR had originally declared VAT at the standard rate on its supplies however, it submitted a claim for the repayment of VAT under Section 80(1) VATA 94 on the basis that its supplies should be considered as exempt from VAT and that its previous treatment of accounting for VAT at the standard-rate was incorrect and had resulted in an over-declaration of VAT. It claimed that the activities provided at the camps were incidental to the supplies of childcare which it was making. In effect, it submitted that the wide range of activities which it offered were commercially necessary in the provision of modern-day childcare, where parents expect their children to be stimulated and/or educated whilst being cared for in a safe and secure environment.

HMRC disagreed on the basis that the supplies fall outside the exemption with the result that RSR’s original treatment of the supplies was correct. HMRC argued that the primary aim of running the camps was to offer sports and activities to the attendees and that the childcare was simply a by-product of the activity-based courses.

The FTT noted that both parties accepted that the supplies made by RSR, in the course of providing the holiday camp services, amounted to a single composite supply and not multiple supplies. The goods and services supplied were so closely linked that they formed objectively, from an economic point of view, a single supply which it would be artificial to separate into its constituent elements for the purposes of applying VAT law. It was also agreed that in order to determine whether the single composite supply fell within the exemption, it was necessary to identify the predominant element of the supply which had to be determined from the point of view of the typical consumer and having regard to the qualitative and not merely quantitative importance of the elements falling within the exemption in comparison to those not falling within the exemption. Also, looking at the point of view of the typical consumer, it was not appropriate to consider the intentions of each consumer individually because that would be contrary to the objectives of the VAT system of ensuring legal certainty and a correct and straightforward application of the exemptions. Instead, regard had to be had to the objective character of the supply.

In summary, RSR’s Services would fall within the ambit of both the exemption in Article 132(1)(h) and item 9 of Group 7 of Schedule 9 (for which the FTT considered there to be no meaningful distinction) only if the predominant element of the composite supply comprising those services was the provision of childcare and not the provision of activities.

In allowing the appeal, the FTT found that:

• The holiday camp services involved the provision of activities in the course of caring for children during the school holidays. In other words, the services included both an activities element and a childcare element.
• In order to make the holiday camp services attractive to potential consumers, RSR was anxious to emphasise the activities element of the relevant services.
• The activities were supervised by RSR’s staff but there was no coaching or teaching of the relevant skills and the staff in question were not required to have any coaching or teaching qualifications or experience. In addition, there was no external standard to which the activities were being provided. Consistent with their role as activity supervisors and not coaches or teachers, the only qualifications which needed to be held were the appropriate DBS checks required by OFSTED, a child safeguarding certificate from the NSPCC and a first aid certificate.
• The holiday camp services were almost identical to other services provided by RSR which had been accepted as exempt from VAT.

The FTT noted that it would be hard for anyone to conclude that a typical parent who used the services did not have childcare in mind as at least some element of the service which was being offered; the children attending were being cared for during the school holidays by people who had the appropriate childcare qualifications and RSR was registered with OFSTED and the holiday camps were supervised by OFSTED to ensure compliance with the Childcare Act 2006.

Whilst one element of the service was the provision of activities, this was not the predominant element, the members of staff were merely supervising activities and it would be wrong to regard the activities as having been sufficiently an end, in and of themselves, to have become the predominant element of the relevant supply. Instead the activities were a by-product of, or, more accurately, an adjunct to, the essential service, which was childcare.

In distinguishing this case form that of Sport Academies and Planet Sport (where the appellants provided sports coaching) the FTT concluded that RSR should not be deprived of the exemption for the holiday camp services merely because it provided activities in the course of providing the childcare which was a feature of the service – as opposed to adopting a more passive approach – and sought to attract prospective customers by stressing the availability of those activities.

As a parent of young children the court absolutely made the right decision here, when I send my children to summer schemes my primary concern is the welfare of the children and the activities, while important, are very much secondary to that. If you would like to discuss how this case might impact you please feel free to contact me at drafferty@uk.ey.com.

Dermot Rafferty is a Senior Manager, specialising in Indirect Tax, at EY