I am glad to see there is interest in this matter. I, too, have met with all sectors involved, the commercial health and fitness clubs, the club health and fitness clubs and those that believe they are medically distinct from health and fitness, the distinction some of them are drawing, as Deputy Keogh outlined. I will outline the full details of this because many arguments are coming from different sides.
The effect of the amendments would be to confer VAT exempt status on health and fitness clubs which are providing the facilities on a commercial basis. The amendments are prompted by claims that unfair competition has arisen between these enterprises and non-profit making organisations who are exempt from VAT providing similar services. That case is being made by the people who are lobbying. I met all sectors to try to formulate a view. I am very aware of their views, that they are subject to unfair competition from non-profit-making organisations. They spelt out many examples — I do not intend to mention the clubs.
It is clear, first, that under EC law where facilities of this type are provided in the course of business — that is the key word — the same rule should apply as to any business activity, a liability to VAT and VAT correctly arises. So, if it is commercial, it is treated as a business and is liable to VAT. I have availed of the flexibility under the EC agreements to apply a reduced rate of VAT to these activities, as we discussed with Deputy Cox yesterday.
It would not be permitted under EC law to grant an exemption. Where claims of unfair competition are concerned, an important aspect, which may not immediately be appreciated, is that although the health and fitness classes may be provided on the premises owned by a non-profit making organisation, liability to VAT does arise if the person providing the service is operating in a commercial capacity, for example, the provision of keep fit classes in a hall rented from a school which goes on in many areas.
This liability to VAT applies, as in any other commercial activity, subject to the relevant VAT thresholds, that is if, as we discussed yesterday, it is £15,000 in the case of any supply and services. Therefore, if Joe Bloggs and Mary Bloggs are providing a service by renting the school hall three or four nights a week for aerobics or whatever, and the take from that service is more than £15,000 a year, then it is commercial and they should be paying VAT; they are in the business. That is the simplest way of putting it.
Information available would suggest that in many instances these thresholds would not be exceeded because we are talking about people, often from my own example as a Deputy, who are merely doing a favour on behalf of a residents' committee. They are professionals in their own right and they are giving an hour or two on a Wednesday night to the men's overweight club or the ladies' fitness club and they get a few quid. I certainly would not like to stir up the hornet's nest because I know that clubs of both codes use vocational education committee halls and pay a few pounds to the instructor or coach for the nine months of either the soccer or gaelic season. I do not think we want to get involved in this; let us be careful.
The Revenue Commissioners have assured me that they will follow up on any specific information received not only to ensure VAT compliance, which is what the industry is concerned with, but also in relation to the income tax implications. If it is an activity that is going on in a big way, there is an income tax liability as well as VAT liability.
It has also been suggested that these commercially run health and fitness clubs should be treated on a par with health and medical professionals, for example, doctors, nursing homes and clinics. That different argument is being put forward by one group of gentlemen who have been lobbying and who had a meeting with me. This argument cannot be accepted as the nature of the service provided cannot be likened in a real and practical sense to that provided by a medical doctor or a member of the nursing profession, nor can it be accepted that the service provided is genuinely educational in nature, and therefore, be exempt. It would be stretching the imagination, if you wanted to fight the other way, to say that if Bertie Ahern wants to get fit so that he might avoid a heart attack in five years time, and goes to the gym every night for the next six months, it is a medical as distinct from a fitness exercise. I cannot accept that argument.
A further point worth mentioning is that the placing of health and fitness clubs in the schedule of categories, which is what Deputy Cox was saying, exempt from VAT would deny to their owners input credits on VAT charges by suppliers of equipment and other goods and services connected with the running of such clubs. I have been through this one with some of them. When I used train I used a skipping rope and ran in a field and was lucky to have a shower afterwards. Most of the clubs I was with used a barrel of water. I understand that the equipment used to set the heart and pulse beats and so on cost a fortune and that the VAT payments are high. It is questionable as to whether the owners of such clubs would desire that change. I do not think they would. In this context it must also be borne in mind that non-profit-making entities who are exempt from VAT are not entitled to claim VAT credits on the equipment purchased. This further reduces any VAT induced difference between the non-profit making and commercial entities. When I went through that argument with them, they saw the point because they do not want to lose out. They cannot have it both ways.
It will be seen from these comments that rather than exempt the commercially-run businesses the approach should be to consider bringing the non-profit organisations within the VAT net in relation to those other activities which are in direct competition with the commercial entities. There are some examples of that. I do not want to mention the clubs involved but we are talking about big time operations, we are not talking about school halls or the parish or community halls. We are talking about those who set up a big and very well run club that opens at 8 a.m. and closes at midnight and has top professional people employed. They say this is all non-commercial, it is all for love, honour and glory and they pay no income tax and no VAT. Their cosy little arrangement is hammering the health and fitness club down the street which is paying top rents, income tax and VAT. Although EC law allows for this, it is clearly a sensitive issue and one which requires careful consideration, bearing in mind the underlying nature of the organisations concerned. The subtleties are not hitting the parish or community hall as against the big time operations.
Following the meetings, to which I referred with various groups, I undertook to keep the matter under review, in particular with a view to ensuring that undue distortions of competition do not arise. I have undertaken specifically to follow the points and the information that these groups have given to me about particular clubs. I will look at that and will report on it in due course.