Apportionment of membership fees cannot be retrospective

Under normal circumstances, the provision of a package of benefits by an organisation, in return for a membership subscription, would take the VAT treatment of the principal benefit, the other benefits being treated as ancillary.

In other words, there would be a single, composite supply of the package, taking the VAT liability of the main benefit, which would normally be standard rated or exempt.

In effect, this applies the principle decided in the Card Protection Plan case, whereby the ancillary benefits are ‘a better means of enjoying’ the main benefit.

However, in accordance with Extra Statutory Concession 3.35 in Notice 48, non-profit making membership bodies are allowed to apportion their subscriptions to reflect the value of individual benefits.

For example, this creates a particular advantage where the membership subscriptions are exempt (say, under VATA 94 Schedule 9 Group 9) and members’ benefits include a handbook or annual report, which are zero-rated for VAT purposes.

If the whole subscription were exempt, no input tax would be deductible on attributable costs, whereas if a proportion of the subscription is taxable, albeit zero-rated, a fair and reasonable proportion of the attributable input tax becomes deductible.

HMRC have become aware that certain organisations have re-worked past VAT returns, thus applying the concession retrospectively. In Revenue & Customs Brief 06/09, HMRC announce their view that the ESC cannot have retrospective effect and state their intention to reject refund claims.

It is also evident that some organisations consider there to be one, principal benefit in the form a zero-rated supply (presumably the supply of publications). HMRC will consider such claims if based on law, rather than the retrospective application of the ESC.

Non-profit making organisations whose subscriptions are currently treated as wholly standard rated or exempt, should consider applying ESC 3.35 as soon as possible to reflect individual benefits taking a different VAT treatment. However, they should ensure any apportionments only apply from a current date.