All UK member golf clubs will receive a massive windfall

[Mark Chaplin]

Over the past 25 years the number of courses grew considerably in the UK and the private member clubs took a battering from the proprietary courses who marketed aggressively and under cut the established society scene. Golfers went for the new American style courses with lots of water and fancy bunkers, deserting traditional lunches for burgers and chips. The number of golfers did not grow at the same rate so a lot of private clubs had a very hard time and many proprietary courses without the regular member income went to the wall.

Adrian strong businesses will survive and many on the edge may go under but that happens in every line of business.

Personally I don't think the country can afford to pay back VAT to private clubs but the courts disagree, in the future I expect the rules to be changed so we all pay VAT on green fees. Now VAT on subs could send hundreds of private clubs into fallow fields!

[Adrian_Stiff]

Mark that would be my take on it too. The government no longer give relief to non profit making organisations. Vat will be added to subscriptions and that in turn sorts the EU green fee/temporary member. That ruling gets them out of a lot of trouble, the distorted trading platform (which is fact) gets levelled. It is fair to all clubs.

It is bad news for members clubs who would need to raise their subscriptions by 14% ish to compensate and would cause further losses of membership mainly to those marginals that play 20 times or less.

[Jon Wiggett]

Adam, Adrian,

I missed that this was the appeal. As I said, I can not see HMRC (Gov) giving back large amounts of money. As said by an earlier poster it could end up with VAT relief for non profit making enterprises losing tax exemptions but do not see it as a problem for propriety courses.

Jon

[Thomas Dai]

Governments, however big they may appear, also have cash flow to consider and they traditionally don't like handing out big cheques so I guess any rebate will be piecemeal over time rather than as a one-off rebate cheque plus I'd anticipate some tweaking of various other tax rules so that the Govts right hand will ultimately get back what the Govts left hand has had to pay out.

If they are within the group of 300-400 members clubs who have submitted claims as part of the same case then the amount of rebate could vary massively depending on the level of greenfee income a particular members club has accrued over the period involved. It could be a pretty large figure to some of the 'big beast' clubs but only a small amount to lesser member clubs.

I can also foresee some interesting debate at the large number of members clubs (outwith those 300-400) who haven't submitted claims as part of the same case. "Why has club X got a VAT rebate and we haven't Mr Chairman/Mr Finance Director/Mr Secretary/Mr Accountant?".

ATB

[Adrian_Stiff]

Jon - The HMRC must do as told by Brussells. The claimants will get their money full stop. As I see it, from yesterday green fees are vat exempt for ALL member clubs, but I am not 100% when laws become law Mark Pearce would know I expect.

The government will be prompted to now look at the situation and it could go one of several ways, the best outcome being to give all golf clubs the exemption and all golf clubs being able to claim. I think the popular opinion from the people I have spoken with is that the government will remove the VAT exemption for non profit making sports clubs. The CASC situation has recently been reviewed, that too creates distortion and I think there will be significant tightening there as well.

[Mark Chaplin]

There are also issues around "unjust enrichment" so clubs will not necessarily get what they think they are due.

To be honest Adrian the main competitor clubs to good honest proprietary courses take in the tens of thousands in green fees rather than the hundreds so yes there maybe a bit of a tickle but clubs will not be receiving millions or hundreds of thousands. The handful that might will do very well in the future no matter what.

There is no way the VAT will be removed by HMG for an elitist sport!

[Adrian_Stiff]

There are also issues around "unjust enrichment" so clubs will not necessarily get what they think they are due.

To be honest Adrian the main competitor clubs to good honest proprietary courses take in the tens of thousands in green fees rather than the hundreds so yes there maybe a bit of a tickle but clubs will not be receiving millions or hundreds of thousands. The handful that might will do very well in the future no matter what.

There is no way the VAT will be removed by HMG for an elitist sport!

Mark - We take £300,000 in green fees, so currently £50,000 would be our claim for green fees alone, membership I think is £70,000. So our claim if we could claim would be close £1,000,000 for subscription and green fees and we have only been open since 2002. If the claim was for 1990 which is one of the dates talked about (certainly for subscriptions) then some of the courses I have been involved with would be approaching £1.5M. There was even talk about it going back to 1971 at one stage but I don't know if that claim is still live or dead. There will be a lot of courses where not much is involved, but I remember working it out roughly that it could be a Billion that the gov pay out and a county secretary said it was nearer 2 to 3 if the government lost everything.

I know there are various lobbying groups, some have been trying for the level playing field for 20 years. Last year the judge ruled it as distortion and that was pre Thursday and without thought to CASC. I don't understand your last line but there is or was an EU directive a few years ago that said something like Vat on sport shall not be more than 8% (something like that) and I think only a few countries adopt it. The main criteria in the thinking is if we encourage sport and activity people will need less medical care which I suppose if you look purely at the economic point of that is a bit contradictionary since those people will live longer and require more pension money!

[Lou_Duran]

Lou

It all depends on which side of the tracks you approach this issue from.  Its great for me as a guy who rarely frequents corporate clubs and is a member of a member club.  Its not so great for guys who own courses and are trying to make money.  In the end, I don't think it will matter much in the big picture of UK golf.  

Ciao

Sean,

I am looking at the big picture- to paraphrase your own Andy Haldane on financial regulation in this morning's WSJ, the thunderstorm as opposed to the individual rain drops.  I am addressing golf in the aggregate, and money being left in the industry- note to Niall: private clubs are part of the industry; quite possibly more important in your country than in the U.S.- seems like a good thing.  Having said that, as others have noted not so directly, government's insatiable appetite for revenue likely means that this decision will be reversed at some point, or new legislation will be enacted to grab more money from other people's pocket.  Unfortunately, history suggests that this doesn't stop until one becomes Detroit.

Adrian argues that in a segment of the market, price, not quality or value drives volume.  Ron Whitten made the same point a few years back in Golf Digest in an article analogizing golf to the pizza business.  I suspect that the price sensitivity Adrian and Ron lament is very real in certain segments, but I'd be much more concerned had the decision been made to take more revenues from the market.

The USGA in the "Rules of Golf" stresses the underlying theme of treating like things alike.  Government, unfortunately does precisely the opposite.  It rewards activities which it finds meritorious (or helping in its endeavor to keep growing), and punishes those which it deems able to bleed more.  For example, the great state of New York is currently advertising a new initiative for businesses moving there- no taxes for 10 years.  How is that for structuring a competitive disadvantage for those loyal NY businesses who've managed to keep their doors open.

Though I understand Adrian's concern that his not-for-profit competitors have been dealt a better hand, I would have been much more moved if he had instead came out for removing VAT from all green fees.  I know that in this day and age, what I am suggesting is akin to Don Quijote prevailing over the villainous windmills (and I don't mean Trump fighting the proposed wind farm near his course in Scotland), it just seems much more noble than lamenting a slight reversal of the very real trend we're all on toward serfdom.

[Michael Latham]

It will be interesting to see how HMG reacts to loss of the Bridport Appeal. Unless it is prepared to fly in the face of European directives regarding VAT, (and if they did it would not be the first time), they have very little wiggle room except to pay up. They could then adopt a wholly new approach with a new uniform rate for VAT and Golf which might recover some of their lost monies over time but so far they appear to be very reluctant to do so.
Personally I hope they address the iniquity of differential rates based solely upon the nature of the organisation. I take the view that the use of untaxed surplus funds, arising from green fees, to depress the members subscription in a Members Club is as much of a distribution as is a dividend in
a proprietorial club.
But thats another matter (as is the use of CASC) and probably way outside the remit of a site about golf architecture.

[Jon Wiggett]

Adrian,

I did not realise you were a non profit making private members club. I suspect that this will be somewhat of a hollow victory like the equality of car insurance turned out to be.

Jon

[Adrian_Stiff]

Lou - I do think and hope that the removal of Vat is for both types of club. At this stage we do not know how the HMRC are going to play their next moves and a lot of what I have said over the last few posts is opinion or popular opinion by those in the know. The one thing I am is fair (or I think I am) when the labour gov cut Vat from 17.5 to 15% a few years ago I gave the 2.5% back to the customer, no one did that in my area.

What commercial clubs have in their favour is a judges say that distortion has been caused. To create a distorted trading platform is against EU law, though this is done consistently in the UK by virtue of our Vat threshold, if you are below I think 73,000 annual turnover you do not have to register, if you are Vat registered you charge 20% in addition to your normal bill and pass that 20% to the government. You can claim the Vat back on things you buy whilst a non registered person cant so the distortion is rarely 20%. The distortion can still be huge when you supply labour. For instance if I supply labour at £10 per hour the client pays £12. It does not matter if the client is Vat registered as he can reclaim, but if the client is not registered he is better to deal with non vattable people.

Also, the fact that a green fee is now tax exempt was one of the reasons cited by HMRC when they defended their corner against commercial clubs exemption, so they may not be in a position to defend anymore.

The real problem is time and despite many of you (mainly Americans) the situation is pretty desperate now and some clubs will get timed out.

[jeffwarne]

Lou

It all depends on which side of the tracks you approach this issue from.  Its great for me as a guy who rarely frequents corporate clubs and is a member of a member club.  Its not so great for guys who own courses and are trying to make money.  In the end, I don't think it will matter much in the big picture of UK golf.  

Ciao

  Government, unfortunately does precisely the opposite.  It rewards activities which it finds meritorious (or helping in its endeavor to keep growing), and punishes those which it deems able to bleed more.  For example, the great state of New York is currently advertising a new initiative for businesses moving there- no taxes for 10 years.  How is that for structuring a competitive disadvantage for those loyal NY businesses who've managed to keep their doors open.

Lou,
I see that NY ad all the time.
Just what a borderline successful , loyal, tax paying etitity needs-subsidized competition.

I've often wondered why a successful business wouldn't hire a good lawyer, technically shutter up, and reopen and pay no taxes for 10 years.

or NYS could come up with a tax rate that incentivized not only new businesses to come, but CURRENT BUSINESSES to STAY.

[Jonathan Mallard]

To all:

One point that none of you are addressing: This ruling (and let's assume for this note that it is final) does not begin to address the fundamental issues that some clubs are reportedly experiencing.

If members clubs, or other clubs are close to bankruptcy/administration, there are reasons for that. This windfall will buy them some time, but it doesn't begin to address the fundamentals that brought them to this point.

The cash infusion will certainly help some, and may make just enough difference for others provided that they can maintain their rates in the new environment.

But it doesn't address the macro situation that brought the clubs to this point. After the effects wear off, they'll be back to the same situation described in some of the earlier posts.

[Paul Gray]

To all:

One point that none of you are addressing: This ruling (and let's assume for this note that it is final) does not begin to address the fundamental issues that some clubs are reportedly experiencing.

If members clubs, or other clubs are close to bankruptcy/administration, there are reasons for that. This windfall will buy them some time, but it doesn't begin to address the fundamentals that brought them to this point.

The cash infusion will certainly help some, and may make just enough difference for others provided that they can maintain their rates in the new environment.

But it doesn't address the macro situation that brought the clubs to this point. After the effects wear off, they'll be back to the same situation described in some of the earlier posts.

Not so Jonathan.

The windfall is one thing but, for the future, the 20% reduction in variable costs on green fees is going to effect the field massively.

I strongly suspect that, short term at least, proprietary clubs are not suddenly going to hit the wall. The reality will be competition which would otherwise have vanished in the next, say, five years will simply not vanish. Longer term, with debts paid off and a continued lack of VAT on green fees at private clubs, proprietary clubs will find it harder to compete.

Not only is the 20% a factor; it's worth remembering that many of the modern proprietary courses came out of the 1980's water and fountain mould which is so derided around here and, as such, are already struggling to cover the high maintenance costs which go with such places. Not only is the excessive sand and water costly, the soil is frequently less than ideal. With this in mind the 20% 'discount' for the competitors down the road looks ever more concerning.

And then, even if you can market your product well and get new customers on the course, if you need double the footfall of the guys down the road just to break even you're going to struggle to have a course that looks and plays as well as theirs. Golfers have a habit of making a mess of golf courses.

[Lou_Duran]

or NYS could come up with a tax rate that incentivized not only new businesses to come, but CURRENT BUSINESSES to STAY.

That ship has sailed long ago/the cart is much too full and no one riding is about to jump off.  Short of forcing equally punitive tax and regulatory policies on other states, the Californication of the nation, and, ultimately, currency controls, the only course left is to entice fresh horses from elsewhere, while making it difficult for those already harnessed to escape.  Ordinary folk don't want to screw with the IRS or the NY tax authorities.

Golf, as a rather expensive recreational activity, is particularly sensitive to economic conditions and the availability of discretionary income.  The creation of wealth and the health of the golf industry are intertwined.  If business and growth are considered bad things by the ruling class and its dependent constituencies as it is common in many places today, then we can't be optimistic about the future of golf.

The fundamentals of golf are still sound.  It is a great sport with much to offer its participants over a life time.  The economics not so (why there are courses available today for 20% of replacement costs).  Unfortunately, as someone noted earlier, golf is seen as "elitist" and the only elites countenanced by the Collective are fellow statists.  The groups who currently support golf most significantly are the same who have the bullseye on their backs as pressure increases for more government revenues.  We will find just how elastic the demand for golf is in the not too distant future.  Perhaps the scary valuations Adrian alluded to earlier are more reflective of future prospects than the present "distorted trading platform".      

[Jon Wiggett]

Paul,

I think where private members clubs have a disadvantage is on weekends and peak times members stop greenfee play on any large scale. This also happens to be when most greenfee players want to play. A true propriety club will fill these times with GF players. I still think that private members clubs who are struggling need to bite the bullet and adjust their spend to better reflect what they can actually afford.

Jon

[Sean_A]

To all:

One point that none of you are addressing: This ruling (and let's assume for this note that it is final) does not begin to address the fundamental issues that some clubs are reportedly experiencing.

If members clubs, or other clubs are close to bankruptcy/administration, there are reasons for that. This windfall will buy them some time, but it doesn't begin to address the fundamentals that brought them to this point.

The cash infusion will certainly help some, and may make just enough difference for others provided that they can maintain their rates in the new environment.

But it doesn't address the macro situation that brought the clubs to this point. After the effects wear off, they'll be back to the same situation described in some of the earlier posts.

Jonathon

Yes, it was addressed.  There was definitely an overbuild of courses in the UK for a market which never properly materialized, even before the hard times.  I would say that by no later than 2000 clubs should have realized that something was up and that long term plans should have been put in place.  I still recall when I left my club nobody called or wrote me to ask why or what could change to make me reconsider.  I found that lack of investigation when it was clear clubs were struggling astoundingly stupid and possibly arrogant.  

Ciao

[Jon Wiggett]

To all:

One point that none of you are addressing: This ruling (and let's assume for this note that it is final) does not begin to address the fundamental issues that some clubs are reportedly experiencing.

If members clubs, or other clubs are close to bankruptcy/administration, there are reasons for that. This windfall will buy them some time, but it doesn't begin to address the fundamentals that brought them to this point.

The cash infusion will certainly help some, and may make just enough difference for others provided that they can maintain their rates in the new environment.

But it doesn't address the macro situation that brought the clubs to this point. After the effects wear off, they'll be back to the same situation described in some of the earlier posts.

Jonathon

Yes, it was addressed.  There was definitely an overbuild of courses in the UK for a market which never properly materialized, even before the hard times.  I would say that by no later than 2000 clubs should have realized that something was up and that long term plans should have been put in place.  I still recall when I left my club nobody called or wrote me to ask why or what could change to make me reconsider.  I found that lack of investigation when it was clear clubs were struggling astoundingly stupid and possibly arrogant.  

Ciao

Sean,

the fact that you were not missed should say a lot about the club culture from a 'members belonging' point of view

Jon

[Sean_A]

Jon

To be fair, I was probably one of the few who really questioned the decision-making when it came to the course.  If the junta in charge would have been more forthright and transparent about decisions I might have stayed even though I disagreed with most of the moves.  As it was, I didn't feel as though the ruling junta really knew what they were doing and their failure to answer my questions sealed my fate.  I was a pain in the back side for a lot of amateurs playing at course management so they were probaby glad to the door close behind me.

Ciao

[Paul Gray]

Paul,

I think where private members clubs have a disadvantage is on weekends and peak times members stop greenfee play on any large scale. This also happens to be when most greenfee players want to play. A true propriety club will fill these times with GF players. I still think that private members clubs who are struggling need to bite the bullet and adjust their spend to better reflect what they can actually afford.

Jon

Jon,

Yep, I'd broadly agree with that. The 20% is no magic wand and, run badly enough, many clubs will continue to struggle.

And Sean makes an interesting point in relation to this regarding when he left his previous club. I can relate to his scenario as I experienced something vaguely similar when I went away to university at the age of eighteen. Call it teenage arrogance but I'd been a loyal servant to that club and paying an annual fee only marginally lower than that paid by real grown men wasn't an option. I did write to the then new secretary (a man who apparently was a moderniser) but wasn't even give the courtesy of a response. Eighteen years on and I'm pleased to say the club has changed its ways but the errors of the past led to a lot of now highly talented professional men (I'll exclude myself from that group  ) leaving the club behind.  

[Tony_Muldoon]

Not just applicable in GB&I apparently.  



http://www.irishgolfdesk.com/news-files/2013/12/21/millions-for-irish-golf-in-vat-refund-bonanza.html

Though the sums mentioned seem smaller it boggles the Brain to think how much VAT, Ballybunion, Lahinch etc could be due.   However their would be zero popular support in the country for the government handing out millions to Golf Clubs.

[Sean_A]

Not just applicable in GB&I apparently.  



http://www.irishgolfdesk.com/news-files/2013/12/21/millions-for-irish-golf-in-vat-refund-bonanza.html

Though the sums mentioned seem smaller it boggles the Brain to think how much VAT, Ballybunion, Lahinch etc could be due.   However their would be zero popular support in the country for the government handing out millions to Golf Clubs.

Spangles

Thats one way of looking at it.  Another may be that the bastard robbing government should pay back with interest what it nicked.  Guess which line of thought I would take  ?

Ciao

[Adrian_Stiff]

Paul,

I think where private members clubs have a disadvantage is on weekends and peak times members stop greenfee play on any large scale. This also happens to be when most greenfee players want to play. A true propriety club will fill these times with GF players. I still think that private members clubs who are struggling need to bite the bullet and adjust their spend to better reflect what they can actually afford.

Jon

Jon - That is a good point. If you could sale g/fees from 8.00 it would be massive, our rules are green fee rules (unless guests of a member) Members only until 11.00 on Weekends. We can take £4000 over the next 3 hours every Saturday.

[Simon Holt]

Adrian,

I've enjoyed reading this thread and the discussion over the implications.  I'm just throwing this out there; would the clubs not be expected to contact all the visitors that have played under the old system and pay them back the VAT the club passed on to them?  Logistical nightmare?

Also, how would clubs go about claiming?

Simon

[Mark Chaplin]

Simon they'd argue the VAT is paid by the club and not passed onto the consumer!

Adrian it's your choice not to sell green fees before 1100 on a weekend but the trade off is obviously guaranteed member income.

If RCP receives a windfall before Christmas 2014 I'll invite Adrian for a VIP day at Deal with some decent wine at lunch. If we haven't received a penny he can host me at The Players Club.