NI ratepayers ‘set for £70m windfall’ as Mid Ulster council lawyers beat HMRC in tax case

A landmark judgment looks set to leave a deep dent in the UK Treasury, as HMRC faces the prospect of repaying an estimated £50 to £70 million to Northern Irish councils alone.
Image of a spin class from Mid Ulster council websiteImage of a spin class from Mid Ulster council website
Image of a spin class from Mid Ulster council website

That is the upshot of a case which has been over a decade in the making, centring on whether the government had the right to collect VAT on revenue councils made from their leisure centres and gyms.

The case pitted Mid Ulster District Council (formerly Magherafelt District Council) against the lawyers of HMRC.

And although the UK has now left the EU, the case hinged on the retrospective interpretation of a small piece of EU law, itself dating back a decade-and-a-half.

Work on the case first began in 2009, and the hearings were held last February in Belfast’s Royal Courts of Justice, in front of tax tribunal judge Peter Kempster.

On Saturday, the tribunal published its ruling – something which only came to light today thanks to a statement from Mid Ulster council.

In that statement, the council’s Sinn Fein chairman Cathal Mallaghan said: “This is a mammoth victory from which each and every council here, and their ratepayers, will benefit substantially. Given the significant financial pressures which we all face as a result of the pandemic, the timing couldn’t be any better.”

He credited the victory in large part to the council’s finance director John ‘JJ’ Tohill.

The London barristers who led the case were Melanie Hall QC and Harry Gillow of Monckton Chambers; in a statement the chambers said the ruling “will potentially have far-reaching implications for all UK local authorities”.

Mid Ulster council itself expects a rebate of “between £3m and £4m” (for context, its annual budget is about £40m).

Province-wide the estimated rebate is between £50m and £70m (based on analysis from councils and the legal team).

Again for context, across all NI councils annual expenditure is about £850m, according to the NI Association for Local Government.

What the case boils down to is this: the judge found that charges paid by members of the public ever since 2006 for access to sport and leisure facilities run by NI councils should not be subject to VAT.

He said such services were provided as part of the fundamental role of the council, and as such it was subject to a “special legal regime”.

The whole case rested on a piece of EU law (Directive 2006/112/EC) which came into effect in November 2006.

It says “states, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities”.

This rule applies as long as it does not “lead to significant distortions of competition” for private gym and leisure firms – and judge Kempster found that it did not.

Asked for comment, HMRC said it is “considering the judgment carefully”. It has 56 days to appeal.


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