The potential for a cash refund follows a misinterpretation of a European ruling, which means that clubs have been mistakenly paying VAT since 1990. They will now be able to claim it back from Customs and Excise.
Over the next few months, many will be asking their members what to do with the cash. Because VAT costs are passed on to the membership, thousands of sports club individuals could benefit from the refund.
For some people, that could run to hundreds of pounds - at some of the big golf clubs, for example, membership fees can be thousands a year.
And of course, as well as the one-off refund, members will benefit from the continued savings.
However, it is up to each club to do its sums and decide whether it is worth back-dating its VAT exemption to 1990. Many clubs that have bought new equipment over the past four years will have reclaimed their VAT on expenditure. That money will have to be set against any potential refund.
Customs and Excise is leaving it up to the clubs to decide what to do with any windfall. It said it was putting together a guidance note, due out at the end of this month, on how to apply for the refund. It said that it expected the total amount claimed to reach pounds 40m. The new ruling only applies to clubs that are non- profit making. Proprietorial clubs will not benefit from the change.
One organisation that has been trying to advise its membership on the best course of action is the UK Indoor Bowling Association, which has about 304 clubs among its membership.
Derek Halls is treasurer of the Tye Green Indoor Bowls Club in Harlow. He is also an accountant. He said: 'If they have had any major improvements, it may not be worth clubs claiming the VAT back.'
The annual membership fee for his club is pounds 27.50 including VAT. Pensioners pay a reduced rate of pounds 12.50. The club has more than 1,000 members.
Mr Halls said: 'The cost saving could be substantial when, for example, green fees are included.'
The Sports Council has issued initial guidelines to clubs on the refund. It said the exemption would not extend to sport clubs run by local authorities.
'Local authorities are in a slightly different position with regard to recovery of tax,' it said. 'They can reclaim all VAT incurred on costs attributable to their exempt sales and services, provided that this does not exceed 5 per cent of their total VAT payments. An increase in the scope of VAT exemption, however, may result in this 5 per cent being surpassed and recovery entitlement forfeited.
'As a result of potential implications for net VAT liability, the exemption will not extend to local authorities for the present, pending further consideration.'
The Sports Council said that if some local authority clubs became VAT-exempt and some did not, there would a distortion of competition, which was another reason why it felt that it needed to consider the matter further.
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