Financial brief: Tax alchemy for a sports club

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Financial brief

 

by James Aitken, freelance tax and legal services consultant

As we all know sports clubs, as with most other bodies and organisations, are having to deal with the tough economic conditions.  One option for increasing revenue may lie in the granting of “Community Amateur Sports Club” (CASC) status.

If a sports club is registered with HM Revenue & Customs (HMRC) as a CASC, it may qualify for a number of tax advantages.  These include claiming tax relief on gift aid donations and relief on corporation tax and non-domestic rates.  Sports clubs are subject to the corporation tax rules even if they do not have company status.  

How do you achieve CASC status?

First things first.  Look at the section on the HMRC website on CASC status:  www.hmrc.gov.uk A list of sports clubs who already have CASC status and a list of eligible sports can also be found on the HMRC website.  There is also a telephone helpline if you have further questions. I have found the persons manning this helpline to be both helpful and knowledgeable.  

The next step is to discuss CASC status with your club or committee members.  The amount of work required must not be underestimated.  I would also recommend doing a cost benefit analysis.  Start by looking at the club’s level of donations over the last few years.  Then calculate how much tax the club could have reclaimed or saved.

The club’s constitution

The club’s constitution or other governing document must also meet a number of conditions:

 

•    the club must be open to the whole community without discrimination
•    the club’s main purpose must be to provide facilities for eligible sports, and to encourage people to take part in them
•    the club must be organised on an amateur basis
•    it is managed by “fit and proper persons”

In addition, the majority of a club’s members must participate in an eligible sport.  A participating member does not just mean a member who plays, but includes those engaged in activities such as coaching, managing, preparing playing surfaces, refereeing, supervising juniors, and broadly any non-paid work undertaken on behalf of the club.

These conditions are likely to mean that the club’s governing document will need to be amended.  The CASC application form highlights and provides guidance on the areas that are likely to need amending.  Helpfully a club’s draft amendments can be submitted to HMRC along with the CASC application form.  This is helpful as it is usually takes more than one attempt to get the changes approved by HMRC.  

Qualifying conditions for CASC status

To register as a CASC, the club must be set up with a formal written constitution.  The club’s constitution must require the club to meet certain conditions, and the club must also be able to show that it actually meets these conditions in practice.   

Discrimination

When a club is deciding who can join or how members can use the club’s facilities, it must not discriminate at all, for example on the grounds of:

•    ethnicity, nationality, sexual orientation, religion or beliefs
•    sex, age or disability – except when it’s necessary for taking part in a particular sport

Level of fees

A club can have different classes of membership but must set its membership fees at a level that most members of the community can afford. These fees must not be an obstacle to membership or to the use of its facilities. If the sport is an expensive one, like sailing or polo, a club must show that it’s done what it can to make it affordable for the majority of people.

Providing facilities and encouraging participation in eligible sports

A club does not need to have its own facilities for members to use when they take part in eligible sports. If it hires facilities for its members it would still be providing facilities. So, if a club regularly hires facilities at a local authority leisure centre so that its members can take part in an eligible sport – this would be providing facilities.

Potential tax advantages

If a sports club is registered with HMRC as a CASC, it may qualify for a number of tax advantages – known as tax exemptions and tax reliefs – on income, gains and on profits from some activities. These include claiming back tax on Gift Aid donations, and relief on corporation tax and on non-domestic rates.  However – this doesn’t mean that a club won’t ever have to pay any tax – some income may remain taxable.

Corporation tax relief

Sports clubs are liable to pay corporation tax on their profits. Sports club profits include all income and any capital gains made.  If a sports club is registered as a CASC it may be able to get tax reliefs to reduce its corporation tax bill. These reliefs include not having to pay tax on:

•    trading profits, if the turnover is no more than £30,000 per year
•    income from letting property, if the rent is no more than £20,000 per year
•    any interest received
•    any capital gains it makes
•    any Gift Aid donations

Conditions for being able to claim tax relief

A club must use its income for ‘qualifying purposes’ to be able to claim the full amount of the relief.  Qualifying purposes are providing facilities for eligible sports and encouraging people to take part in them.

Non-trading activity

If a CASC provides goods and services for club members – for example, a bar for their exclusive use – this doesn’t count as trading, therefore any profits made aren’t taxable.

Relief on non-domestic rates

Automatic 80 per cent rates relief if the club’s property is used wholly or mainly for the purposes of the club or another CASC-registered club.

Gift Aid

Gift Aid is a way for a CASC to increase the value of monetary gifts from UK taxpayers made to a club at no extra cost to the donor.  As long as the rules of the Gift Aid scheme are met, a club can claim back basic rate tax on donations made by individuals.  Gift Aid can only be used for voluntary donations.   Gift Aid cannot be used to claim tax back on:

•    payments for goods and services – for example the personal use of sports facilities
•    membership subscriptions

The donation is treated as if the basic rate of income tax has already been deducted by the donor.  Charities and CASCs can then claim the amount of tax deemed to have been deducted.  The amount of deemed tax is presently 20% of the donation.  This could be worth thousands of pounds a year to a sports club.  

VAT and CASCs

Whilst a club may get various tax reliefs if it’s registered as a CASC, unlike charities there are no specific VAT reliefs. However, a club may qualify for a VAT exemption for fundraising events and certain sporting activities.  

If the club is wound up

A club’s rules must say that when it’s wound up, its assets must be used for ‘approved sporting or charitable purposes’. Approved sporting or charitable purposes means for the purposes of:

•    the sport’s governing body for use in related community sport
•    another registered CASC
•    a charity

Club Management – Fit and Proper Persons

Anyone who will be involved in the day-to-day running of a club should read HMRC’s guidance on ‘Fit and Proper Persons’. This guidance explains the need for CASCs to ensure that their managers are suitable to hold such posts and, in particular, that they haven’t been involved in tax fraud or disqualified from being an official or trustee.

How to register as a CASC

If a club wishes to register as a CASC it will need to apply to the HMRC CASC Unit using the CASC application form.   The form can be found on the HMRC website and is fairly straightforward.  The guidance notes which form part of the form are also very useful.  Most of the work to be undertaken involves verifying that the club meets the qualifying conditions outlined above.
When you send in your completed form you must also send:

•    the club’s governing documents – such as its constitution, rules, memorandum and articles of association
•    the club’s latest accounts
•    a copy of the club’s prospectus – if there is one – and members’ rulebook

Send to:   
HMRC Charities
CASC Unit
St Johns House
Merton Road
Liverpool
L75 1BB


What happens next?

On receipt of the application, the HMRC CASC Unit will decide whether a club meets all the conditions for registration. If all the conditions are satisfied the registration date can be backdated to the start of the accounting period in which the application was made.  If any of the conditions have not been met HMRC will write to the club and outline what needs to be done to meet all of the conditions.  Once registered, HMRC will include a club’s details in a list of all registered clubs on its website.

If the changes to the governing document were in draft form only they will have to be ratified at a club AGM or EGM before HMRC will formally grant CASC status.    

I have found that the process takes around a year.  Once granted a club can then make regular Gift Aid claims to HMRC.   
CASC is not for everyone and takes a bit of effort to achieve.  That said, the benefit can be thousands of pounds per year.  In these tough economic times that could make a great deal of difference to a club’s turnover.  Given the potential importance of this relief I have asked the Scottish Government to put some more information on its website about CASC status.