Vexing VAT – Quick Takeaways from GCMA Partners Golf Finance and Tee to Green Accountancy

Golf Finance and Tee to Green highlight some key areas that Golf Clubs should be aware of with regard to VAT expenditure and exemption:

Asset finance provides a strategic financial tool for Golf Clubs to acquire equipment and fund projects to deliver a high-quality experience to their members and guests. When it comes to funding the VAT element, there are some important points to consider – these are highlighted by asset finance specialist Golf Finance:

Especially with high-value assets, VAT can be a substantial figure. For most businesses this is not an issue – but the way most Golf Clubs are set up allows only a small percentage of VAT to be reclaimed. It is therefore important that clubs take this into account when they are budgeting, and that they have a plan in place to manage this expenditure.

Rather than paying the VAT all up front at once, very often Golf Clubs would be better off by spreading this cost across the term of the agreement – which can be done by setting up a Finance Lease package. This enables the club to maintain extra working capital in the bank or for use on other projects and purchases. Generally, there is no need for additional security as the finance is secured against the equipment. At the end of the agreement term, by conducting a simple end-of-lease transaction, ownership of the asset is transferred to the Golf Club at no cost.

Another type of package that can be set up is a Hire Purchase agreement, but this has very different implications when it comes to the VAT element.

Essentially, the key difference between these two options is that with a Finance Lease, VAT is paid across the term of the agreement, and with a Hire Purchase, VAT is all paid upfront. As we mentioned earlier, this is a critical distinction because of many Golf Clubs’ inability to reclaim their full VAT expenditure. With a Hire Purchase agreement, there is also an Option to Purchase fee at the end of the term, which is required for the asset to be transferred to the Golf Club.

Given all Golf Clubs are set up in a variety of business styles, specific questions around VAT from an accountancy point of view can be tricky. So, if you’ve made the decision to finance the purchase of your new asset, and everything is in place to do so, but you’re not sure about the VAT implications of each option, then this is where Tee to Green Accountancy come in.

This particular area of the legislation is most simple for corporate Golf Clubs, where VAT is charged on all green fee income. Corporate Golf Clubs are those that are run primarily for profit and not for the benefit of members.

Charging VAT on all of their income means that corporate Golf Clubs are able to recover the VAT in full on any of their purchases (including leased assets). To some degree, this removes the cashflow conversation around the spreading of VAT, making the decision more about the financial implication of leasing versus buying the asset outright.

As the majority of members’ Golf Clubs are caught by the partial exemption scheme for VAT, the cost of purchasing or leasing any asset should factor in the irrecoverable VAT incurred on the asset. For assets that are used for wholly vatable supplies such as bar and catering, the club is able to recover the VAT on the asset lease or purchase at a rate of 100%.

For assets purchased for use in and around the clubhouse, these items will likely fall under the banner of partially exempt. This means that you’ll apply your partial exemption recoverable rate (for most clubs, somewhere between 25 and 35%), meaning the remainder will be irrecoverable and therefore a cost to the club. An example of this would be:

Your club purchases a new telephone system for £4,000 plus VAT and has a partial exemption rate of 30%.

  • The club is allowed to recover £240 of VAT (£800 VAT @ 30% recoverability).
  • The club writes the remaining £560 off as part of the cost of acquiring the telephone system.

Where things become a little more complicated are when we are discussing assets used by the greens team to care for the course. As green fee income is ordinarily exempt from VAT, this would then mean the VAT on the asset lease or purchase is 100% irrecoverable.

If the club has vatable income from corporate golf days, then it produces vatable supplies on its greens area, and therefore the expenditure then falls within the partial exemption calculation. At that point, the club is then able to recover VAT at the rate discussed above (our example was 30%).

Get in touch

Should you have any questions around leasing or purchasing, or the VAT implications of doing so, please do not hesitate to get in touch with either Golf Finance on 01620 890200 or Tee to Green on 01704 333939

By [email protected]

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