Seven key takeaways – the local authority leisure agency model in 2025 webinar

Key takeaways:

• 1) The new Leisure Agency Models are a tax-efficient way to enable local authorities and operators to form partnerships in leisure. This is because HMRC have agreed that leisure services are non-business activities, so local authorities no longer have to charge VAT on the vast majority of leisure services, and with their special VAT arrangements are able to recover the VAT incurred on their operating expenditure in full.
• 2) Local authorities can backdate and recover up to four years of VAT which is now considered an overpayment. This will provide local authorities with a cash benefit at a time when money is needed to be reinvested into leisure, an invaluable service which helps people’s physical and mental health.
• 3) At FMG Consulting, the principles of the commercial transaction remain the same. Operators will respond to the local authority requirements including developing their financial model which will generate a Minimum Guaranteed Sum, previously the management fee. The Operator will act as the agent and remit all of the income it collects to the local authority alongside an invoice for providing the services and collecting the income. The income collected that is remitted and will include VAT, which the local authority will pass over to HMRC on its VAT return. The local authority will also include on this return any VAT charged by the Agent for its services. A reconciliation will need to be undertaken to ensure that all the payments are adjusted for the VAT elements, and that net cash position agrees back to the Operators financial model, or which is referenced by the Operator as its Minimum Guaranteed Sum.
• 4) FMG Consulting is now able to set the core pricing of these services so whilst this provides greater control, it also means more responsibility and risk. Pricing, for example, should ideally be indexed in the same way as annual payments to ensure that the bottom line is still achievable for the agent.
• 5) A hallmark of the new leisure agency models is that agents should only act within the limits of the power granted to them by the local authorities. This means that the permissions and limitations that an authority intend to grant need to be set out in the contract.
• 6) These new models are particularly complicated under DBOM (Design, build, operate and maintain) structures. This is because the operator acts as principal in respect of the design and build phase of the project and the lifecycle aspects of the building. The agency relationship is confined to making the leisure outputs available to users which means the contract may need to split out such roles.
• 7) When it comes to existing contracts, it may be possible to vary them in order to implement an agency model in a procurement law compliant way. If the existing contract was awarded under the PCR or CCR, the modification provisions within those regulations will apply. Any modification to such contracts would therefore need to fall within a permitted modification ground(s) under the PCR or CCR to be compliant. In some cases, it may not be possible to modify a contract in accordance with those modification provisions, meaning that the contract would need to be reprocured.

Overall, local authorities will take these new models as an opportunity to test the market and see which operators are able to stand behind their models and take some of the risks in order to ensure the authority will continue to receive the benefit of the VAT pass-through, subject to changes in law outside of their control. Local authorities can also welcome a new way of communicating with its constituents through this leisure service. Operators will have to be aware of the new expectations that come with this. But this shifting dynamic will also mean local authorities have to be diligent and take a more proactive approach to their reputation management.

Keep an eye out over the rest of 2025 and into 2026 for more discussions, webinars and articles about this pertinent topic. Sign up to our mailing to ensure you do not miss out.