Corporation Tax
Everything in Corporation Tax
Corporation Tax
To help clubs understand the rules and regulations in this area, the RFU has produced a Corporation tax guidance note and supporting materials.
It cannot be assumed that just because a club is run on a “not for profit” basis, that it is exempt from tax.
It is important for sports clubs to be aware that they have no special corporation tax exemptions compared to a normal business, and as such, if they are ‘trading’ they may have a corporation tax liability to pay.
Whether the club is a limited company or unincorporated club is irrelevant– the club must consider what corporation tax it needs to pay. Generally, a club that only exists to provide social, recreational or sporting facilities for its members is unlikely to be trading.
Difficulties arise where a club does more than this, and provides services which might be quite commercial and profit seeking in nature to nonmembers even though the surpluses are used to support or subsidise those services to members.
Where a club’s income generating activities are more substantial the club will need to consider:
- Whether the club is carrying on a trade, and if so
- The extent to which that trade is a mutual trade
Whilst a club may be non-commercial there might be ancillary forms of trading income. These could include bar and catering sales to non-members and sponsorships derived from businesses.
If a club’s activities are similar to those of a commercial business (albeit often on a much smaller scale) then it is likely they are trading.
The term mutual trade refers to where trading only arises between the club and its full members. It is vital for a club to know who are full members are and who are nonmembers.
Full members would usually be expected to have the following rights:
- Can fully participate in the club’s activities
- Vote at meetings and can exercise control over the running of the club
- Share in any distributions on winding up (unless the club has a special tax status e.g. CASC or Charity)
A member’s personal guest, where that member bears the cost of the guest visiting, can be treated as part of the full member’s dealings with the club.
In a members’ only club bar/restaurant, the members are not seen to be buying and selling food and alcohol.
As the club’s full members, they own it jointly and are essentially consuming their own property, so there is no trade and therefore any excess income is not liable to corporation tax.
Other activities In order to grow and improve, a club may look to find ways of increasing its income through the introduction of non-exempt activities and / or nonmembers.
This will then inevitably increase the chances that corporation tax may become due.
Where there is income from members and non-members, it is important to identify the gross income arising and the relevant expenditure in relation to each category of member, as this will be needed to calculate the taxable profits.
Each source of income must be considered in turn and can only be ruled out if there is an exemption for that particular source of income.
Corporation Tax is chargeable on the following sources of income and gains:
- Trading profits from non-members eg bar and food takings, fundraising and sponsorship
- Investments eg rental income from property or bank interest
- Selling assets eg land, property, equipment, shares
In order to arrive at the profit liable to tax, it is important to understand what expenses can be claimed against each particular source of income.
Incorrect application of the rules can lead to underpayments of corporation tax and result in penalties and interest.
Corporation tax is a tax payable on profits (i.e. taxable income less deductible expenses) and gains and is charged at a flat rate, as determined by legislation (currently 19%1).
Clubs are liable to pay Corporation Tax on their profits from non-members and non-mutual trading.
- Legal & Tax Helpline: 0333 0100337
- HMRC
- Corporation Tax guidance
- Charity Commission
- Community Amateur Sports Clubs
These guidance notes provide details of corporation tax which are relevant to community rugby clubs. It is written in general terms and cannot be relied upon to cover specific situations. Clubs are reminded that they should therefore seek their own independent professional advice. The notes have been prepared by Jerroms Business Solutions Ltd and is correct to the best of their knowledge and belief at 30th June 2017.The author takes no responsibility for any consequence of a user or club placing reliance on this guidance.
