Community Amateur Sports Clubs:How will the changes affect

your Club? John DevineMuckle LLP

Thursday 3 April 2014

Extract from Hare’s letter to AEAFACASC: What’s changed?

• Membership fees• Payment of players • ‘Social Club’ limitations • Tax benefits• Corporate Gift Aid• HMRC and Finance Bill 2014• Proposed restrictions• Comparison of legal structure and tax status

Extract from Hare’s letter to AEAFAMembership Fees

• Annual membership and participation fees (including equipment) of up to £520 a year

• If over £520 a year, provision must be made for people on lower incomes to benefit • ‘open to the community’

• Maximum annual membership fee of £1,612 or £31 per week, subject to certain community concessionary offers being implemented

areConcessionary Offers letter to AEAFA

• Available to people who wish to participate but can’t afford membership

• Examples of these offers include• open days, taster sessions and lower income packages• free coaching and equipment loan • discounted and concessionary membership fees, possibly

including means tested membership

areConcessionary Offers letter to AEAFA

• Examples• establish a charitable fund / bursaries to young people

who may not be able to afford membership, coaching and or equipment

• advertise all the opportunities and packages available to play at the club

Extract from Hare’s letter to AEAFAPayment of Players

• Clubs will be able to financially support players subject to a limit of £10,000 a year per club

• Clubs will be able to pay reasonable travel and subsistence expenses to players where they are participating in away games and club tours

Extract from Hare’s letter to AEAFAPayment of Players

Extract from Hare’s letter to AEAFA‘Social Club’ Limitations

• At least 50% of members must be participating members of the club

• No limit on the amount of income clubs may generate from members• there will be a limit of £100,000 they can generate from

trading with non-members• Clubs generating higher levels of income will need to

consider setting up a trading subsidiary

Extract from Hare’s letter to AEAFATax Benefits

• Government will extend, for the first time corporate Gift Aid to CASCs

• Thresholds will be increased• exemption from tax for trading income increased from

£30,000 to £50,000• rental income increased from £20,000 to £30,000

• Proposed extension will have effect for gifts made on or after 1 April 2014

Extract from Hare’s letter to AEAFACorporate Gift Aid

• Gross amount of the gift is deducted taxable profits before payment of tax

• Tax benefit is to donor company• New revenue stream with increased incentive

for corporate donors• Consider tax structure of engagement with

commercial partners• “mere acknowledgement of support” = Gift Aid• sponsorship = Taxable trading

Extract from Hare’s letter to AEAFACorporate Gift Aid: Example

• Company makes taxable profits of £250,000• Company donates £30,000 to CASC• Taxable profits reduced by gross gift

• £250,000 less £30,000 = £220,000• if £30,000 had been retained, small rate CT would

apply at 20%• net effect is that it costs donor company £24,000 to

donate £30,000 to CASC

• CSR• treated as corporate Gift Aid donation• donation must be made freely without obligation on

CASC’s part to provide goods or services • fully tax deductible for corporation tax purposes• mere acknowledgement of support

(not active commercial promotion)• “kindly supported by”

Extract from Hare’s letter to AEAFACommercial Partners

Extract from Hare’s letter to AEAFACommercial Partners

• Commercial sponsorship • does the commercial partner require anything in return

for making the contribution?• tickets, branding on training wear, player appearances etc

• commercial promotion• “sponsored by” • www.tesco.com

• taxable supply by CASC• consider use of trading company• VAT implications

Extract from Hare’s letter to AEAFAHMRC Consultation

• CASC Summary of Responses – 25 Nov 2013 • https://www.gov.uk/government/consultations/co

mmunity-amateur-sports-clubs-casc-scheme• Draft clauses to be included in Finance Bill

2014 published for technical consultation (closed on 4 Feb 2014)• https://www.gov.uk/government/uploads/system/

uploads/attachment_data/file/264471/21._Community_amateur_sports_clubs.pdf

Extract from Hare’s letter to AEAFAFinance Bill 2014

• Awaiting outcome of technical consultation• Where there are abusive arrangements

between • a company controlled by a CASC and • a member of the CASC• the amount of a qualifying donation will be

restricted

• “Inflated member-related expenditure”• employment expenditure incurred in the employment of a

club member• expenditure incurred on a supply of goods and services to

the club by• a member of the club • a member-controlled body• in each case, otherwise than on an arm’s length basi

Extract from Hare’s letter to AEAFAProposed Restrictions

Extract from Hare’s letter to AEAFAProposed Restrictions

• But if the features of the arrangement are more advantageous to the company than if the employment or supply had been on an arm’s length basis, any expenditure incurred in respect of the employment or on the supply is not inflated member-related expenditure

Extract from Hare’s letter to AEAFALegal Structure (1)

Unincorporated Association Limited Company Charity

Unincorporated members' club operated for the benefit of its members.

Company limited by guarantee (if operating as a 'not for profit' community club) or shares if commercial purposes and intended to be profit-making.

May be structured as an:(i) unincorporated association (ii) charitable trust(iii) limited company(iv) charitable incorporated

organisation (CIO)

An organisation of two or more persons who are members of the association who agree to cooperate in furthering a common purpose.

Normally non-profit making functions, with no share capital and members rather than shareholders.

Non-profit making. Surpluses generated are applied in furtherance of the wholly and exclusively charitable objects.

No principal regulator. Registered at Companies House and regulated by Registrar of Companies.

Registered with and regulated by Charity Commission for England and Wales.

Managed by Committee of Management.

Managed by Board of Directors. Managed by board of Trustees.

Extract from Hare’s letter to AEAFALegal Structure (2)

Unincorporated Association Limited Company Charity

Governed by Constitution (and/or set of Rules).

Governed by Memorandum and Articles of Association.

Governed by:(i) Constitution, if it is an

unincorporated association(ii) Trust Deed, if it is a charitable trust(iii) Memorandum and Articles of

Association, if it is a company(iv) Constitution, if it is a CIO (NB:

‘Foundation’ model for trustee only control or ‘Association’ model for trustee and member control)

Extract from Hare’s letter to AEAFALegal Structure (3)

Unincorporated Association Limited Company Charity

Liability for individual members of Committee of Management is both unlimited and "joint and several" (which means that they are each fully liable for the performance of the association's obligations and, against each other, could pursue one another for a contribution if a claimant pursues one party only and receives payment in full).

Directors are typically indemnified by Company for acts done in ordinary course of business; but they should not assume blanket immunity since this would not protect them in cases of wrongful or fraudulent trading.

Trustees' liability will depend on whether the charity is:(i) unincorporated (i.e. an

unincorporated association or charitable trust) in which case it is unlimited; or

(ii) incorporated (company or CIO) in which case the liability of trustees acting as legal members is limited to a nominal sum (£1 or £10)

(NB: In the case of charities structured as companies limited by guarantee, trustees often perform a dual role as both the company directors and legal members so that can effect decisions at board or member level as required in accordance with company law).

Extract from Hare’s letter to AEAFALegal Structure (3)

Unincorporated Association Limited Company Charity

Each member's personal liability will usually be limited to the extent of their subscription fee.

Members' personal liability limited to nominal sum of £1 or £10.

Members' liability will depend on whether the charity is:(i) unincorporated (i.e. in the case

of an unincorporated association) in which case it is often limited to subscription monies; or

(ii) incorporated (company or CIO) in which case members' liability is limited to a nominal sum.

No separate legal personality – contracts are entered in to in the joint names of the Committee of Management.

Separate legal personality – contracts are entered in to in the name of the registered company.

Legal personality depends on whether unincorporated or incorporated (see columns to the left).

Extract from Hare’s letter to AEAFALegal Structure (4)

Unincorporated Association Limited Company Charity

Suitable for small members' or amateur club with no significant assets or interest in property and which does not employ staff or enter in to contracts or other arrangements involving risk.

Suitable for any club which has significant assets or interests in property (whether freehold, leasehold or licence) and / or which employs staff and / or enters in to contracts or other arrangements involving risk.

Charitable status may be appropriate for either an unincorporated association or company.

Extract from Hare’s letter to AEAFATax Status

• Table based on Community Amateur Sports Clubs – The Tax Options published by Deloitte Sports, 2005, as updated in Ashton & Reid on Clubs and Associations (second edition, Jordans Press)

• New = Updated following HMRC’s CASC Summary of Responses (November2013)

Extract from Hare’s letter to AEAFATax Status: Regulations (2)

Unincorporated Association Charity Community Amateur Sports Club (CASC)

No restrictions on activities. Significant social activity and trading, e.g. a bar, to be kept separate from charitable activities.

Social membership and trading, e.g. a bar, generally permitted.New - At least 50 per cent of members must be participating members of the clubNew - No limit on the amount of income clubs may generate from members but there will be a limit of £100,000 they can generate from trading with non-members. Clubs generating higher levels of income will need to consider setting up a trading subsidiary.

Prima facie no restriction on distribution of profits and assets to member.

Cannot distribute profits or assets to members.

Cannot distribute profits or assets to members.

Extract from Hare’s letter to AEAFATax Status: Regulations (3)

Unincorporated Association

Charity Community Amateur Sports Club (CASC)

No need to change club rules. Club will have to change its rules since its objects must be exclusively charitable, i.e. to promote community participation in healthy recreation / sport.

Club will need to change its rules e.g. if it does not have a dissolution rule providing for its net assets to go to sport's governing body for community sport, another CASC or charitable purposes rather than to its members.

Players can be paid. Players cannot be paid unless for coaching; they can receive reimbursement of expenses for travel to away matches.

Players cannot be paid unless they also coach; they can receive reimbursement of expenses to away matches.New - Clubs will be able to support players financially subject to a limit of £10,000 a year per clubNew - Clubs will be able to pay reasonable travel and subsistence expenses to players where they are participating in away games and club tours

Extract from Hare’s letter to AEAFATax Status: Incentives to Give

Unincorporated Association

Charity Community Amateur Sports Club (CASC)

No tax relief. Gift Aid on individual and company donations.

Gift Aid on individual donations (no relief on company donations).New - Gift Aid on company donations

No Payroll Giving. Payroll Giving allowed. No Payroll Giving.

No tax relief. Income and corporation tax relief for gifts of shares and property.

No income or corporation relief for gifts of shares and property.

No tax relief. Inheritance tax relief on gifts. Inheritance tax relief on gifts.

No tax relief. Gifts of assets on "no-gain no-loss" basis for capital gains.

Gifts of assets on "no-gain no-loss" basis for capital gains.

Extract from Hare’s letter to AEAFATax Status: Fundraising

Unincorporated Association Charity Community Amateur Sports Club (CASC)

Relief if gift constitutes business sponsorship.

Business: relief on gifts or trading stock.

Business: relief on gifts or trading stock.

Reliance on existing sources of funding.

Grants may be available from other charities, e.g. community foundations and other bodies supporting charities.

No new sources of funding generally available.

Extract from Hare’s letter to AEAFADirect Taxes (1)

Unincorporated Association Charity Community Amateur Sports Club (CASC)

Income from non-members taxable. Primary purpose trading income exempt from tax.

Income from non-members taxable (but see Fundraising Income and Rental Income below).

Fund raising income taxable. Other fund raising income exempt from tax either by concession or by using a "trading subsidiary".

Fund raising income exempt from tax where turnover less than £30,000 (if more, it is all taxable without marginal relief). New - exemption threshold from tax for trading income increased from £30,000 to £50,000

Rental income taxable. All rental income exempt from tax. First £20,000 pa of rental income exempt from tax (if more, it is all taxable without marginal relief). New - rental income exemption threshold increased from £20,000 to £30,000

Extract from Hare’s letter to AEAFADirect Taxes (2)

Unincorporated Association Charity Community Amateur Sports Club (CASC)

Capital gains (subject to re-investment relief) and interest taxable.

Capital gains and interest exempt from tax.

Capital gains and interest exempt from tax.

Corporation tax on all taxable profits.

Corporation tax on all taxable profits.

Corporation tax on all taxable profits.

Discretionary rate relief (up to 100%).

80% mandatory rate relief; discretionary relief as to the remaining 20%.

80% mandatory rate relief; discretionary relief as to the remaining 20%.

Funds can be applied generally for any purpose within the rules.

Corporate tax liabilities can arise if funds applied for non-qualifying purposes.

Corporate tax liabilities can arise if funds applied for non-qualifying purposes.New – Beware of 'Inflated member-related expenditure' restrictions

Extract from Hare’s letter to AEAFACASC vs Charity

• Strategic review of Club’s objectives • Would charitable status assist or restrict?

• Public perception• Tax effective giving• Rate relief on property• Increased opportunities with commercial partners• Increased accessibility to grant funding• VAT and other tax reliefs

Extract from Hare’s letter to AEAFAContact Details

John DevinePartnerTel: 0191 211 7905Mobile: 07714 721 268Email: john.devine@muckle-llp.com

Extract from Hare’s letter to AEAFA