Are surpluses of trade associations taxable

Are surpluses of trade associations taxable

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 My client is a Limited by Guarantee company formed for the benefit of the restaurant trade. Individual restaurants pay annual memberhip subsciptions. These are then used to provide benefits such as Listings on the Company's website (a detailed profile of the members), general information and guidance, health and safety infomation, and everything relevant to the Restaurant trade.

Surplus is kept in the company and is not distributed to the members.

1. Is there Corporation Tax on the surplus?

2. Is there Vat on the subsciptions ( i e should the Company register for Vat if the threshold is reached?)

I just read on one of the tax forums that this may fall under mutual trading and hence not taxable? I should be grateful for advice

Thanks 

Replies (9)

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By Steve McQueen
20th Sep 2011 14:00

This is a very technical area

This is a very technical and specialist area. I have had two of these types of circumstances before and ended up taking Councels advice both times.

Both eventually ended up in Court.

We won one and lost the other.

Given the potential PI issues down the line, I would strongly suggest that you contact your tax support, document everything as you proceed and and go from there.

 

Steve

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By bernard michael
20th Sep 2011 15:06

Associations

Does it not fall under IR41??

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By Steve McQueen
20th Sep 2011 15:10

IR41?

Forgive me, I don't know the HMRC guidance by heart any more: IR41 appears to be about Income Tax and Job seekers... is this the correct reference?

 

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By yorky1000
20th Sep 2011 15:12

Yes/no and yes

I have similar clients in the Water Industry and mutual trading has been accepted by the IR. If any part of the income represents money from non-members that, in theory, is taxable but you should be able to find enough costs to put against it.

Subs are normally within VAT (eg Sports clubs) so I would have thought the same applied here.

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By bernard michael
20th Sep 2011 15:17

Error

Sorry finger trouble I should have mentioned IR46 not IR41

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By Steve McQueen
20th Sep 2011 15:42

To expand on previous answer

Its a number of years since I was involved in this and much has happened to me since then, so the memory is somewhat blunt.

In the case of the one I lost, I had a letter from HMRC agreeing it was mutual trade. They then later raised an enquiry and subsequently stated "that whoever wrote that letter should be shot" in a further letter. I learnt that day that you cannot take HMRC agreement to anything as being the definitive position and they have the right to change their mind and challenge themselves!

Ultimately, we ended up arguing about law - hence why it went to court.

What determined the outcome was to do with what happened to any remaining surplus in the club / association in the event of a winding up.

The lost case in the first instance gave me a bit of a name for these things (I even appeared in a couple of national press articles about them), and I attracted several more of them, using the point we lost on in the first instance as being the subsequent successful defense in the second court case and other enquiries.

I am sorry that this is not more detailed, but I cannot remember the specifics and am not in practice anymore and do not have access to reference material.

I still say from experience that its is not as clear cut as it seems and as may be suggested in IR46 and for the sake of your PI get a formal written opinion from your tax support as to their viw and how you should establish the position with HMRC

 

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By thisistibi
20th Sep 2011 16:02

HMRC manuals

IR46 was withdrawn in 2007.  You should read HMRC manuals BIM 24000 onwards.

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By bernard michael
20th Sep 2011 16:25

Double error

Sorry you are right I last had a IR46 case in 2006 . Tempus fugit - I must go on some more courses

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By aadil
21st Sep 2011 10:16

Thanks to everyone for their advice, much appreciated

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