HMRC slips up in skating rink VAT appeal

The Planet Ice group, which operates 14 public skating rinks across England, has won the latest stage of a VAT dispute with HMRC over the hire of ice skates to children using the rinks.

HMRC generally permits ice skates in children’s sizes to be hired VAT-free as a zero-rated supply of children’s clothing/footwear. However, Planet Ice offered a ‘skate with skates’ package, under which customers paid a single fee for a skating session and hire of a pair of ice skates. HMRC took the view that this package amounted to single supply of admission to the ice rink, to which the inclusion of skate hire was ancillary. Therefore, the whole charge was subject to VAT. 

Planet Ice appealed, arguing that it was entitled to treat the element of the charge attributable to skate hire as zero-rated, because the charge covered two distinct and separate supplies - the skate hire, and admission to the ice rink. Around half of its customers used their own skates, so would not regard separate VAT treatment of the two services as artificial.

At the tribunal HMRC argued that a typical customer buying the ‘skate with skates’ package would have regarded it as artificial to split it into a supply of admission and a supply of skates. Their interest was in obtaining the whole package, and this would not be affected by the fact that other customers might purchase skate hire only, or rink admission only.

The case has been passed between tribunals on technical points since 2017, but the latest decision from the First-tier Tax Tribunal has found in favour of Planet Ice. The tribunal decided that the typical customer of the skate/skate hire package would regard themselves as receiving two separate supplies, and not a single supply. Each supply stands on its own and it would not be artificial to split the package into its two separate components. Therefore, Planet Ice was entitled to treat the element of the charge attributable to skate hire as zero-rated.

The FTT’s decision was based on its findings of fact from extensive evidence presented by Planet Ice:

While there was no separate pricing for the admission and skate hire, the amount by which the package exceeded the admission only price was obvious. Also, skating sessions and the hire of skates were both available separately, each at a lower price than the package.

The cost of skate hire was £2, and the skates available were basic, costing around £25 – £35 to buy. While it would take many visits to recoup the cost of buying skates instead of hiring them, plenty of children skated 2 or 3 times a week at Planet Ice’s rinks over a long period, so this was a viable option for them.

There were skate shops located at the ice rink, so it was possible to buy a pair on the day as an alternative to hire. They could also easily be purchased in third party sports shops or online, and a customer survey showed that most customers who bought the ice rink admission/skates package were aware they could bring their own skates if they wished. Customers therefore had a realistic alternative to hiring them

This is the latest in a recent series of cases where HMRC has attempted to disallow a lower rated supply by including it into a larger taxable activity undertaken by the provider. HMRC has already lost two similar appeals this year, including the Snow Factor case concerning a pass to use the ski lift within an indoor snow dome and the Europcar case (see Tribunal supports reduced rate of VAT for the hire of child car seats).

HMRC has not appealed the Europcar or Snow Factor decisions and, in the case of Europcar, claimed that the tribunal’s decision only applied to the very narrow facts of that case. It remains to be seen whether HMRC will choose the Planet Ice case as an opportunity to continue its ‘single supply’ agenda and appeal the decision to the Upper Tribunal.