VAT: Gym and other membership subscriptions

A health and fitness club operator offered a range of services to members which were subject to VAT at the standard rate.

One of the offers was a contract requiring monthly payments and a minimum membership period of 12 months.  If a member defaulted on their payments, access to the gym was denied although membership was not cancelled.  If the membership was not renewed, the arrears were collected by an external debt collection agency.  The question for the First Tier Tribunal (FTT) was whether the amounts collected were subject to VAT.

HMRC considered the amounts received were subject to VAT at the standard rate.  The health and fitness club operator contended that the amounts collected were compensation and therefore outside the scope of VAT.  The FTT considered that by refusing access to the gym while the payments were outstanding, the fitness club did not actually provide any services on which VAT was due.  The membership was not cancelled but there were no services available to the member.

So what does it mean?

The decision entitles the health and fitness club to reclaim all the VAT they accounted for on the receipts collected by debt collection agencies going back four years.

This should not only apply to gyms offering membership but to any other businesses providing services for monthly payments where the services are not available when the subscription is in arrears.

What should businesses do?

Although it is likely that HMRC will appeal the decision, businesses with similar arrangements should consider protecting their VAT position for the future and lodging protective VAT claims with HMRC for the past four years.

(Esporta Ltd) 

Please contact Vaughn Chown on 020 7182 4748 or via email on