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Local Authorities – VAT and Leisure Services – Insourcing versus Outsourcing

By June 15, 2023June 16th, 2023VAT news

Historically HMRC had viewed the VAT treatment of leisure services provided by a Local Authority (“LA”) as standard rated. However, following the London Borough of Ealing VAT case in 2017, they accepted that LAs could benefit from VAT exemption if they wished, provided there was no distortion of competition with other providers. This historic position meant that many LAs outsourced the provision of leisure services to third party operators, typically charities who benefited from other reliefs. The VAT incurred by the LA on the outsourced services could be recovered through the LA’s Section 33 VAT refund process if the VAT was less than 5% of total VAT incurred.

Following the Chelmsford VAT case decision in June 2022, HMRC issued a business brief in March 23 Changes to VAT treatment of local authority leisure services – GOV.UK ( – stating they now accept that LAs can treat the provision of leisure and cultural services as a non business activity. This means that if an LA provides these services using in-house resource, VAT on related costs is recoverable via the Section 33 VAT refund process. This beneficial position is likely to lead to many LAs considering their position and looking to potentially bring the services back in-house at the end of any current outsourced contract period. Clearly there are wider considerations than just the VAT cost.

Claims for overpaid VAT may be submitted to HMRC by any LAs that have been charging VAT on leisure services and we can assist with preparing claims and we also work closely with The Sports Leisure and Culture Consultancy Ltd who can advise on the non VAT considerations to be taken into account in relation to exploring management options (

If you require more information about this issue, please contact Jane Stacey or Kate Insole 07732 901618 07784 042901