Local Authority Leisure Services – VAT efficiencies and the rise of the agency outsourcing structure

A year after the previous bulletin on HMRC’s revised VAT treatment on in-house leisure services, many not-for-profit operators face irrecoverable VAT on leisure centre operations, which is passed on to local authorities. By adopting an agency model, operators charge VAT on their fees for running the leisure centres, while local authorities can reclaim VAT from HMRC, allowing operators to recover previously irrecoverable VAT on their costs.

Max Associates has been advising several local authorities and operators some of whom have already implemented this model, with the first contract variation going live in 2024.  By proposing VAT savings as a contractor change to existing contracts, both parties have benefited significantly financially.

Lisa Forsyth, Managing Director of Max Associates, said: “The agency model can also be considered  in new procurement projects, allowing operators to offer improved financial submissions, offering better value to local authorities. Some authorities have incorporated agency models in the procurement processes, either as a variant or mandatory requirement.”  

Key considerations for integrating this model into procurements include ensuring fairness, documenting contractual changes, and assigning risk for potential HMRC challenges.

This industry insight and guidance can be read here and has been co-published with partners Trowers & Hamlins and PSTAX.

Lisa Forsyth, Managing Director of Max Associates will be discussing at the APSE Roundtable on 22^nd January how the market and local authorities are considering the potential use of agency models in leisure services procurements in 2025, including financial benefits, improved local outcomes and risk. Book your place here.