Judgment summary
This is an appeal by Next Generation Clubs Limited, the representative member of the VAT group operating under the 'David Lloyd' and 'Harbour Club' brands, against HMRC's decision of 29 November 2024 to reject an error correction notice filed on 26 April 2023 (paras 1-2).
The ECN sought repayment of output tax on membership subscriptions for the period 15 July 2021 to 31 March 2022, on the basis that the temporary reduced rate (TRR) of VAT under Group 16 of Schedule 7A to the Value Added Tax Act 1994 applied to those subscriptions (para 2).
The Tribunal considered whether David Lloyd's membership supplies constituted a 'right of admission to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas and exhibitions and similar cultural events and facilities' under Group 16 (paras 7, 14). The Tribunal heard evidence on the range of facilities, events, membership terms and business model of David Lloyd clubs, and ultimately dismissed the appeal, finding that the supplies were not similar to the items listed in Group 16 (para 125).
Background
Next Generation Clubs Limited is the representative member of a VAT group operating leisure and recreational sites under the David Lloyd and Harbour Club brands (para 3). The group described itself in its 2023 Annual Report as Europe's leading premium health and wellness group, operating 133 clubs across the UK and mainland Europe under the vision 'My Club for My Life' (para 17, 23).
The TRR was introduced by the Value Added Tax (Reduced Rate) (Hospitality and Tourism) (Coronavirus) Order 2020, which inserted Group 16 into Schedule 7A VATA 1994, derived from Article 98 and Annex III of Council Directive 2006/112/EC (paras 6-9).
David Lloyd clubs offered a wide range of facilities including pools, gyms, racquet sports courts, spa facilities, creches, children's activity areas, co-working spaces and clubrooms, along with a variety of events such as tournaments, wine tasting, wellness retreats and children's activities (paras 18-21). Membership was structured into Platinum, Plus and Club tiers, with different levels of access, and guests could attend subject to restrictions (paras 22, 38, 50-54).
Core dispute
The essential question was whether David Lloyd's services fell within Group 16, specifically whether they constituted 'rights of admission to...similar cultural events and facilities' to those specifically listed (para 14). It was common ground that David Lloyd's offerings were not 'cultural events', so the focus was on whether they were 'similar...facilities' (para 15).
A further point of contention was whether the word 'cultural' should be read as qualifying 'facilities' as well as 'events' in the statutory wording (para 15, 71-74).
The Appellant argued for a purposive, contextual interpretation drawing on external materials including the Explanatory Note, Explanatory Memorandum, the Chancellor's 'Plan for Jobs' speech, HM Treasury policy paper and HMRC guidance, contending that Group 16 was intended to have a wide economic support scope covering leisure and entertainment venues functionally similar to listed attractions (paras 67-68). The Respondent argued that such policy documents were irrelevant or of minimal weight where the statutory language was clear, and could not expand the legislation's scope (para 69).
The parties also disputed the correct approach to assessing 'similarity': whether the supply had to be similar to a specific listed item, or whether it could be assessed against the characteristics of the list as a whole (para 77). A further issue was whether David Lloyd was supplying a 'right of admission' at all, or merely a right of access via membership (paras 115-124).
Court findings
The Tribunal found that no individual element of David Lloyd's offering (sports, social, spa, children's or other facilities) was so dominant as to eclipse the others, and the supply was a single supply to be considered as a whole, not a supply of sporting facilities outside Group 16 (paras 49, 62-63).
On statutory interpretation, the Tribunal held that 'cultural events and facilities' was a description of the specific items listed in Group 16 rather than a separate definition requiring an independent finding of 'cultural' content (para 76).
Applying the test from Phantasialand (an activity must have similar characteristics and meet the same needs from the point of view of a typical consumer, such that the goods or services are interchangeable), the Tribunal held that similarity should first be assessed against specific items in the list, and if not, against the list as a whole (paras 78, 86).
The Tribunal rejected the submission that David Lloyd's sites were similar to 'amusement parks', finding this was not supported by the evidence and that the CJEU's description of an amusement park in Phantasialand was not a comprehensive definition (paras 88-93).
Considering the list as a whole, the Tribunal found that the listed items shared common characteristics: each involves a main attraction experience that draws customers, and each is 'extraordinary' in the sense of being outside ordinary day-to-day life (paras 101-108). David Lloyd's business, by contrast, was found to have no single main attraction and to be designed as part of members' everyday life (the 'my club for my life' vision and the 'dwell' strategy), more akin to a 'third space' (paras 104, 107-109).
The Tribunal concluded that the average consumer would not regard David Lloyd's supply as meeting the same needs as items in Group 16, and that competition for a consumer's time and money was not itself sufficient to establish similarity (paras 110-111). The Tribunal also found no ambiguity in the statutory wording that would allow external policy material to expand its scope to cover David Lloyd's supplies (paras 112-113).
On the separate question of whether David Lloyd supplied a 'right of admission', the Tribunal found the supply functionally equivalent to that considered in Esporta, being a right of access to a site rather than a right of admission to an attraction, given its finding that the supplies were not of an 'attraction' (paras 116-124).
Outcome
The appeal was dismissed (para 125). The Tribunal held that David Lloyd's membership supplies did not qualify for the reduced rate of VAT permitted by the TRR Order, as they were not similar to the items listed in Group 16 of Schedule 7A VATA 1994 (para 114).
Major issues / areas of contention
- Whether David Lloyd's membership supplies fell within Group 16 of Schedule 7A VATA 1994 as a 'right of admission to...similar cultural events and facilities' (para 14).
- Whether the word 'cultural' in Group 16 qualified 'facilities' as well as 'events' (para 15, 71-76).
- Whether the correct approach to assessing similarity was against a specific listed item or against the list as a whole (para 77, 86).
- Whether David Lloyd's sites were similar to 'amusement parks' under the Phantasialand test (paras 88-93).
- Whether David Lloyd's supply, viewed as a whole, was one of sporting facilities falling outside Group 16 (paras 60-63).
- The extent to which external policy materials (Explanatory Memorandum, Treasury policy paper, HMRC guidance) could inform the interpretation of the TRR Order (paras 67-70, 112-113).
- Whether David Lloyd was supplying a 'right of admission' or merely a 'right of access' via membership, applying Esporta (paras 115-124).