The man in charge of the Pure Gym chain, Humphrey Cobbold, makes a good argument for the government to at least reduce the VAT rate payable on gym membership. VAT free gym memberships would be even better, as it would see a 20% fall in cost.
In an interview with Wake Up To Money on Radio 5 Live (19th June), he said that Pure Gym’s members were aiming to get “…in better body shape and better mental shape. It seems a little bit strange for the government to tax that at 20% when we want more people to be doing it. Price is the single most important thing, particularly in some of the more low earning parts of Britain where I am passionate that we continue to open facilities.”
How does VAT affect the price of gym membership?
A profitable gym will be obliged to add a VAT rate of 20% onto its prices. Obviously, this is passed on you as a customer. You may not be aware of this as you pay you membership fee as it is usually just rolled into the overall price. Any reduction in the VAT rate applied, or a total removal of VAT, would mean that gyms could reduce their prices accordingly. It is important to note that the VAT charge added to your membership goes directly to the government and not into the profits of the gym.
Is VAT charged on everything?
No, particular good and services are not required to charge any VAT, or apply a different rate of VAT.
So, why don’t the government introduce VAT free gym memberships?
A spokesperson for the Treasury gave the government’s answer: “If a gym does not make a profit its members will pay no VAT on membership fees under EU law. But until we leave the EU it is not possible to extend this exemption to profit-making gyms.”
But this isn’t strictly true, as reported by BBC online: “EU rules mean the UK cannot reduce VAT on goods and services below 15%, the standard rate of VAT in the EU. The standard rate of VAT in the UK is 20%, so the government could reduce it by up to 5% today if it wanted.”
So, that’s the VAT top rate on everything could be 15%, if the government decided that was the best way forward, not just gym membership. There is also nothing preventing Britain from proposing to the EU that gym memberships have a reduced (5%) or zero rate VAT rate, as they are currently doing with sanitary products.
Is gym membership really that expensive?
Pure Gym seems to have a successful system of cheap £9.99 monthly subscriptions. Their membership rose by 13% last year to a million members. Their profits soared by 63% to a massive £64.4m.
They provide basic gym facilities, without any extras like swimming pools. They also only have a minimal number of directly employed staff, with the personal trainers working as self-employed individuals. Keeping costs down is a key factor to their considerable success.
Deloitte and EuropeActive did a comparative survey of gym usage across the different European countries last year. They found that the average monthly gym membership price in the UK is the third most expensive at £40.53, with Ireland the second at £43.36 and Switzerland being the highest at £58.45. It’s of little surprise then that the UK has the second largest spend on gyms, with the total annual bill of £4.5bn; just pipped to the post by Germany at £4.6bn.
VAT revenue losses now, versus increased future health costs
Cost is relative, what is affordable to some is too expensive for others. When it comes to nationwide health and fitness, it would seem that investment in prevention of ill health is better than trying to pick up the tab for later ill health. Public Health England have advised a combination of 150 minutes of aerobic activity and two or three sessions of strength and balancing exercises per week, for everybody.
Perhaps a reduction in the VAT on gym memberships could be small part of helping secure good health for more people for as long as possible. Surely what we’d lose in tax revenue would be made back in reduced health care demands from a healthier, fitter population. What do you think?