My client runs a bowling club and receives some bank interest. I have assumed this is taxable, and as such, the tax has been deducted at source by the bank. However, the bank manager has informed my client that they are exempt from tax on their savings income. I have checked the corporate finance manual and it clearly states that clubs are taxable on interest. The amount involved is approx £450. Am I missing something? I would tend to believe the bank manager since that is his realm but I can't find anything to corroborate what he has said?
thanks
Replies (4)
Please login or register to join the discussion.
De minimus - £100 CT liability
Interest is usually paid gross to Clubs and Associations by Banks.
If the Club is a registered charity or CASC then the interest is not liable to tax. If the Club is a not-for-profit organisation (but not registered as a CASC or Charity) then the interest is liable Corporation Tax under CTSA and form CT600. However HMRC published a de minimus concession a few years ago:- http://www.hmrc.gov.uk/ctsa/small-tax-liabilities.htm here’s an extract:- In the following text 'club' means 'club and unincorporated association'.Wherethe annual corporation tax liability of a club is not expected to exceed £100, andthe club is run exclusively for the benefit of its own members, then HMRC willprevent the issue of a notices to file returns andtreat the club as dormant, subject to review at least every 5 years. In the case stated there’s potentially a CT liability of £450 interest @ 21% = £94.50 which is just below the £100 stated de minimus.
£450 net or gross
Is the £450 interest net or gross? If it's net then you may have a CT liability to pay (450*10/8)*21%=£118 otherwise as the previous post has said you are under the de minimis assuming the club has no trading income or income from non members.
How long has the interest been paid net, as this will have been subject to income tax and not corporation tax. The club should look to recover the tax deducted - the bank may refund otherwise you will have to do on a tax return. On the flip side if they are earning £450 interest (gross) in these low interest times, they may have earned considerably more previously and have tax to pay! An interesting conundrum.
HMRC tend to operate a light touch in regard to unincorporated organisations, especially considering they don't know about most of them because they have never registered with HMRC in the first place!
Agreed over limit
On the face of it they appear to be over the £100 de minimis. Although I come to a CT liability of £371 after deducting the income tax already deducted!
It is the club's responsibility to notify chargeability to CT to HMRC and if the club committee decided not to then you need to decide if you have any ethical/legal responsibilities under money laundering regs assuming you are chartered.
CASC status would definately be a good idea. They would then have no CT liability, get 80% rates relief (if chargeable) and be able to claim Gift Aid on donations. This gives plenty of opportunities if you are savvy with subs as well. Just a word of caution HMRC are being very diligent on CASC applications and you need to make sure the club meets all the criteria ie open to all/affordable subs etc otherwise the application will be rejected.
The other benefits of CASC status which no one ever seems to mention is that you get a nice letter from HMRC which proves the club's tax exemption. This then means you can access a number of funding/fundraising sources normally only available to charities!
Who said CASC status wasn't worth it.