Lawn Tennis Association - taxation guidance

Lawn Tennis Association - taxation guidance Introduction Clubs are exposed to all of the normal taxes which businesses face. This comes as a surprise ...
Author: Sandra McGee
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Lawn Tennis Association - taxation guidance Introduction Clubs are exposed to all of the normal taxes which businesses face. This comes as a surprise to many club treasurers who have to deal with: * Employment taxes-Pay As You Earn (PAYE), National Insurance Contributions (NIC's) and related issues, * Value added tax * Corporation tax * Business rates. Tax impacts fundraising generally with few concessions for sport so care should be taken in both planning for, and complying with, the above. Community Amateur Sports Club (CASC) and charity status can generate much needed funds from tax reliefs and should be actively considered by clubs. PAYE, NIC and related issues Clubs which have employees are responsible for PAYE and NIC but often do not have the relevant skills to deal with this. Nevertheless they have to1. Collect and pay tax under PAYE and NIC to HMRC, 2. Complete forms and returns including those relating to employees' expenses and benefits, 3. Ensure that employees are paid in accordance with the National Minimum Wage (NMW) rules. The club must keep adequate records, deduct the correct amounts, complete the relevant forms and establish procedures to do this accurately and on time. A Real Time Information for dealing with PAYE and NIC's is now in force requiring the club's payroll to be online and the reporting of payroll details to HMRC electronically as payments are made throughout the tax year. Particular problem areas for clubs area. Employment status- often it is not clear whether a self-employed individual is in reality an employee e.g. tennis coaches, bar staff, grounds men etc. Status is decided on the facts of each case not only on what the engagement letter says. HMRC's website contains useful information on how to help with this. Care should be taken since the club may face liability if it gets it wrong. b. Casuals - care should be taken with casuals who are often employees rather than selfemployed. PAYE and NIC constitute a huge red tape burden; www.gov.uk/paye-for-employers is a good place to start for guidance on collecting, accounting for PAYE and NIC, completing the required forms and the time limits for doing all of this. Errors are likely to result in penalties, interest and back tax for prior years. HMRC regularly confirms that clubs have complied with their responsibilities by carrying out control visits or audits. Clubs should take advice from its accountants before any such HMRC visits.

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Clubs mostly rely on unpaid volunteers who may only receive out of pocket expense in which event there should be no PAYE reporting requirements. However expenses and benefits for employees may have to be reported to HMRC; the rules are changing and clubs will need to check what is reportable. Income tax may have to be paid on reportable non-business expenses and benefits by the employee but this can be avoided in certain cases if the club enters into a PAYE Settlement Agreement (PSA) with HMRC under which the club settles the liability. Clubs should pay National Minimum Wage (NMW) to its employees; compliance with NMW and supporting rules is actively monitored by HMRC who carry out control visits. NMW applies to "workers" and difficulties can arise where an individual receives benefits or payments including payment of expenses in excess of what is considered reasonable. Also issues arise with hours worked by employees when travelling to matches or competitions away from the club. Genuine volunteers with no contractual obligations and who only receive reasonable and properly controlled reimbursed expenses are unlikely to be within the scope of NMW. This is a difficult area for clubs who should review NMW compliance bearing in mind the current climate. Value added tax (Vat) Vat is often a significant cost for clubs; either because they are not registered (if their taxable supplies do not exceed £82,000pa) or if registered because not all of their income is taxable and therefore recovery of Vat on purchases is restricted. In this latter event clubs will also need to deal with electronic filing of Vat returns, record keeping and the additional administration which Vat brings. Registration is mandatory for clubs with taxable income over the annual limit but in deciding this charge to members and non-members (from 1st January 2015) for playing tennis are exempt from Vat and are ignored. This can be a mixed blessing since whilst charges are lower, recovery of Vat on purchases is restricted under the Vat "partial exemption" rules. Vat on purchases which generate taxable income e.g. at the bar are fully recoverable and those relating to exempt income e.g. tennis nets are not recoverable at all. Overhead costs are partially recoverable under partial exemption. A detailed calculation needs to be done to calculate recoverable Vat .There is a de minimis level of irrecoverable Vat which can be ignored and full recovery obtained. Care is required with partial exemption and professional advice may be worthwhile. Vat is often lost on facility improvement costs including equipment purchases. For a non-registered club Vat paid on equipment purchases will not be recoverable. Vat costs will arise even for a registered club under partial exemption and where substantial capital expenditure is budgeted professional advice should be taken at an early stage. New clubhouses may benefit from no Vat on the cost under special zero rating relief for charities (see below). Vat compliance checks can generate substantial income for HMRC so great care is needed by clubs in completing Vat returns accurately and on time with adequate supporting record keeping. Corporation tax Clubs are subject to corporation tax (CT) whether incorporated or not and must file returns online if HMRC requests them to do so or if they have taxable profits. Generally there are no special exemptions unless the club is registered as a CASC or charity. Officers of an unincorporated club can be personally liable if they fail to deal with CT correctly.

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Clubs have to identify taxable sources of income and gains and are allowed to deduct any costs of generating those income and gains as allowed by the CT rules. Member income is generally not taxable but that from non-members is, as are certain gains from the sale of assets. Taxable items would usually include    

Investment income e.g. bank interest Income from property e.g. rental income Trading income from non-members e.g. bar and food sales Capital gains e.g. sale of part of the club land Sponsorship

Grants are generally exempt from CT where no goods or services are received in return. Costs directly incurred in earning income or gains are generally allowed as deductions in arriving at the taxable profit from each source, the exception being interest. Tax relief is available on the costs of buying equipment for use in generating taxable income e.g. bar equipment to service nonmember bar sales. The relief known as capital allowances may be quite valuable if the project has a large budget and in such cases advice should be taken from the club's accountant. Unfortunately no relief is available for the construction costs of a new clubhouse apart from any plant and machinery element. Clubs which have CT to pay must self-assess their CT liabilities, register with HMRC for this purpose, file a CT return online and pay the due amount nine months and one day from the end of their accounting year end. The CT return must be filed within twelve months after the year end. Failure to do all these things may result in interest charges, back dated tax bills and penalties. HMRC will conduct periodical audits to ensure CT compliance is done accurately. The current CT rate is 20% on all taxable profits with plans by the current Government for this to reduce it in the future reaching 18% from 2020. Business rates Clubs occupying property under a freehold or leasehold pay business rates which can impose significant and unwanted burdens on them. Business rates help pay for local services and are collected by the local authority. The rates bill is based on the property's ratable value to which a multiplier is applied to arrive at the amount payable annually. This is subject to rate relief schemes which may be available from time to time. Clubs should consider the following action to try to get their rates bill lowered1. Appealing the ratable value given to the property by HMRC's Valuation Office. 2. Using any rate relief schemes e.g. for small business which may be available. 3. Asking the Local Authority to grant discretionary relief. 4. Registering as a charity or CASC which will provide 80% mandatory relief. Fund raising Fund raising is the lifeblood of many clubs but often the impact of tax is overlooked. Public activities attended by non-members such as dinner dances, fetes and festivals which are regularly carried on by the club may very well be treated as a trade by HMRC for CT purposes. Whilst there is scope for deducting the costs incurred in connection with these activities this is not always

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possible particularly where the necessary records have not been kept. The club may well end up with taxable profits if care is not taken - advance planning may help. The Vat position may be a little easier since there is a special exemption for fund raising events which are organized by non- profit distributing sports clubs exclusively for their own benefit. However HMRC's conditions for exemption must be met so this needs careful attention. Bar income is probably the most important fund raising source which may be overlooked. Nonmember income from the bar is generally taxable after the deduction of applicable costs. Identifying such income may not be easy- HMRC provides guidance on what is taxable and what not and how to measure it in practice. Bar sales of alcohol, soft drinks, food and snacks are Vatable whether sold to members or not. Facility hire is generally subject to CT as rental income less associated costs. If services are also provided by the club such as meals and drinks for a wedding reception or birthday there is more scope for deducting costs as this will be trading income. Letting for a period of less than 24 hours will attract Vat. Letting for more than that on a regular basis can qualify for Vat exemption subject to certain conditions. Special tax status - CASC and charity Registering as a CASC or charity can give rise to cash benefits but these must be weighed up against the time and cost of registering and complying with the conditions for qualification. CASC registration is with HMRC and is likely to involve less administration and regulation than for charity [link to comparison in LTA club structures section]. The main benefits of CASC are mandatory 80% business rate relief, the ability to claim gift aid on individual donations and use of the gift aid small donations scheme and exemptions from CT (complete exemption for interest and capital gains and limited exemption for gross rental£30,000pa- and gross trading - £50,000pa- income). Company donors get tax relief for donations after 1st April 2014. From 1st April 2015 major changes were introduced to the qualifying conditions for CASC registration which include limits on the costs of participation and the levels of taxable income a CASC can have. Also over 50% of members must participate twelve times a year as players or in defined volunteer roles. Existing CASC's must check their position under the new conditions as a matter of urgency and those considering whether to register should also carefully review the new conditions in the light of the improved benefits (for further information see www.cascinfo.co.uk). Charity status can deliver greater benefits than CASC ; one of the most valuable being the charity "brand" which is well known to funders and can attract more financial support. Generally charities are subject to greater regulation because they are monitored not only by HMRC but also by the Charity Commission (in England and Wales- similar regulators in Scotland and Northern Ireland). The main tax and related benefits of charity are similar to those for CASC's but in addition1. Individuals and companies get tax relief for gifts of land and quoted shares. 2. Special Vat reliefs are available including a possible zero rating relief on the costs of new buildings if they are used for charitable purposes or managed and used in a similar way to a village hall. This relief is often difficult to agree with HMRC but can be valuable since no Vat is payable on the construction costs so that partial recovery of Vat is avoided.

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The advancement of amateur sport is now a charitable purpose and this should be reflected in the Objects clause in the club's constitution. Other conditions include the requirement to provide public benefit, open membership and the club must be organised on an amateur basis. Finally, a separate entity will usually be needed to operate the club's bar and accommodate social members who are generally not allowed to be members of the charity. The club Management Committee, usually the charity Trustees, have special responsibilities which should be considered carefully before registering. Conclusion Tax is complex; clubs should pay detailed attention to it, plan to minimise exposure to it, comply with reporting requirements and take professional advice where appropriate.

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