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November 23, 2017

All for the Ball: Queen's Tennis Club vs HMRC

In Queen's Club Ltd v HMRC [2017], the First-Tier Tribunal held that the taxpayer was allowed to claim back input tax incurred on the renovation of a café which was available only to members of the sporting club.


  • Queen's Club Ltd (the "Club") is a sports club which provides its members with the opportunity to play a number of different sports using its facilities.
  • The Club's premises comprised four buildings, one of which (the "Pavilion") included a café and two bars.
  • In order to encourage greater usage of the bars and café (and increase revenues), the Club refurbished the building by upgrading the café to a full-service restaurant.
  • The Club received a number of goods and services with respect to the renovations, including the building materials and kitchen equipment, as well as the services of designers, builders, surveyors, and project managers.
  • The Club then reclaimed the input VAT charged on these goods and services.

The Law: VAT Partial Exemption

A business will be "partially exempt" where it makes both taxable and exempt supplies for VAT.

In order to determine the amount of VAT input tax recoverable, partially exempt businesses must identify input tax which is used exclusively to make taxable supplies and VAT input tax which is used exclusively to make exempt supplies.  Where VAT input tax cannot be "directly attributed" to either taxable or exempt supplies (such as on overheads), this VAT will be allocated according to the special partial exemption rules.

The Case

While the two parties agreed that there was a "direct and immediate" link between the goods and services for the refurbishment and the taxable supplies made in the renovated restaurant and bars, there was disagreement over whether there was also a direct and immediate link between the refurbishment's goods and services and the exempt supplies the Club made.

HMRC’s case was that there was also a link between the refurbishment costs of the bar and restaurant and the provision of the sporting membership.  As such, the expenditure was attributable to both taxable and exempt supplies and therefore input tax available for recovery should be restricted.

The Club contended that there was no sufficient direct and immediate link between the refurbishment costs and the supply of membership of the Club.  This was on the basis that the Club’s sporting facilities were world-class and people became members purely because of the sporting services provided; the provision of bar and restaurant facilities were merely incidental.  This is supported by the fact that membership fees were not reduced to reflect the inconvenience that members suffered while the refurbishment was ongoing and that Club did not seek to attract non-playing members.

The Decision

While the court accepted that members of the Club regarded the restaurant and bar as a desirable feature of membership, this in itself does not establish a "direct and immediate" link with the provision of sporting facilities.

It was held that members did not place any importance on the presence of the refurbished restaurant and bar when they made a decision to renew their membership (or to become members in the first instance).

Therefore the Tribunal held that when the Club made the restaurant and bars available to its members, it did so as part of a supply of catering services.

Sounds familiar?

This case might seem contradictory to the ruling in Bedale Golf Club v HMRC [2015] where the judge supported HMRC in ruling that VAT input tax on a bar at a local club was linked to the "exempt" golf club membership, and as such had to be allocated according to the special partial exemption rules.

However, Queen's Tennis Club can be distinguished from Bedale as the club members in Bedale were attracted by the entire package on offer, which included the bar.  In contrast, people became members of the Queen's Tennis Club purely for the sporting facilities it provided.

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