Surrey Heath Borough Council is changing its leisure contracts that will mean not having to pay VAT.

The change, which will make Places Leisure an agent of the council, will save £286,000 a year going to the treasury.

The windfall will be split 50/50 between the council and Places Leisure.

It’s allowed due to a 2023  HM Revenue and Customs tribunal case that ruled  Chelmsford City Council-provided leisure services can be treated as non-business income and the VAT is fully recoverable.

The decision was made to make the switch at the Thursday, June 16 meeting of Surrey Heath Borough Council’s executive committee.

Councillor Morgan Rise, portfolio holder for environment and recreation at the Liberal Democrat controlled authority, said: “The change is being driven by a 2023 HMRC ruling that allows local authorities to treat leisure centres as non-business activities for VAT purposes, enabling full recovery of VAT on associated costs.

“Under the proposed model Surrey Heath Borough Council becomes the legal provider of leisure services. 

“Places Leisure continues to operate the leisure centres as the council’s agent.

“Day-to-day operations, staffing, facilities, and customer experience remains unchanged, and customers would contract with the council rather than Places Leisure with only minor changes to documentation such as invoices and receipts and membership agreements.

“The reason for requesting this change is to benefit from the increase on VAT recovery and the total annual VAT savings are estimated to be approximately £286,000 and the savings would be shared equally between Surrey Heath Borough Council and Places Leisure.

“Therefore the council share is estimated to be £143,000 per year.”

The council has taken outside legal advice on the matter and is working with a team of solicitors to work through changes needed to the contracts.

The money has already been accounted for in the council’s so-called transformation strategy where it is seeking to make around £3million in annual savings that has already resulted in the loss of about 14 percent of its staff.