Get your heads around this one

Get your heads around this one

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I have had a first meeting with a prospective client. He has a business which his present accountants have up to date and they are a well known firm. However, he also has another business which he has not disclosed to them as he considers it is a "private members club" and he has taken no monies from it but rather inested into it.

The so called members club is an outdoor sports club. Since he acquired the land some 5 years ago, he has invested heavily in equipment, clubhouse, etc. All the assets are in his own name.

It now transpires that the Olympic people are after the site and club and we are talking millions, in fact up to 100 million. Apparently the club is up to olympic standards and this Olympic committee wishes to put up luxury hotels, bars and restaurants together with a riverbus facility. This is subject to he getting planning but apparently all the relevant agencies are fully behind him.

Firstly, is a members club exempt from VAT. Secondly, is a members club exempt from tax and registering with Inland Revenue.

Finally, how should he minimise his CGT if he sells the land and business to this Olympic group. Does he sell the land to an offshore company before planning is obtained ? Does he make the members club into a limited company and rent the facilities to them and return the rental on his tax form? Any advice here would be greatly appreciated.

Thanks

Barry
Barry Barnard

Replies (6)

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By martinfoley07
03rd Nov 2005 15:16

....smell the coffee.....
....Barry.

An objective initial analysis suggests all sorts of problems and issues may lurk here. The first one being, this prospective client could already have been involved in tax evasion. Not a given, of course - there are alternative (and nicer!) possibilities.

Proceed with great caution - you might find yourself the fall-guy, rather than have found a treasure trove of a client.

"Private members club" is a good one, though - I can think of quite a few businesses that that description might fit!!

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By neileg
03rd Nov 2005 11:08

Mmm...
I think you need to be careful, here. It's a bad idea to take on work that you aren't up to. Normally I would always suggest that, rather than giving up the client, you use another expert to give you the strength and depth you need.

However, it seems to me that this client needs some heavyweight tax advice, especially around the CGT issues, and I'm nervous that you won't be able to bluff this one out. This is especially true since this guy already has another accountant in the background. If things go pear shaped, you may find he turns to his other accountant for advice on sueing you!

You should seriously consider not taking on this client.

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By naomi2000
03rd Nov 2005 11:23

beware opinion shoppers
This may sound horribly cynical, but I can't help wondering why this chap has suddenly decided to approach a new firm just as he's about to make a big gain.

He may be trying to use you to try out an argument that his gain isn't taxable or simply going round until he finds someone who gives the answer he wants.

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By User deleted
02nd Nov 2005 18:44

Is it a properly constituted "club"
..because it was described as "his business" !

Were it the case that the club was properly constituted then several tax reliefs are potentially available, including...

> VAT exemption for provision of sporting facilities to members (but NOT exempt on supply of sporting facilities to non-members, also not exempt on social subscriptions and catering or bar supplies to members)

> Had the club been properly formed, and made known to advisors then it might have been able to apply for Community Amateur Sports Club (CASC) status. The most significant benefit here would have been an exemption from CGT. Other benefits include mandatory 80% reduction in business rates. I don't know if CASC status can be backdated.

The above quoted tax breaks are, as always subject of detailed rules !

I don't think a sole trader conveniently pretending to be a club qualifies, not that this is necessarily to the case here.

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By Gordon Sheppard
02nd Nov 2005 19:45

Lottery Win
Silly me, I thought April fools day was on April 1st

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By AnonymousUser
03rd Nov 2005 09:46

Not a members club
This doesn't strike me as a members club in the sense of being a mutual trade where the members of the club as a whole contribute to and own the assets of the club. There may be a club and it appears that use of the facilities is limited to persons who are members of it. The principle behind mutual trades is that you can't make a profit out of trading with yourself, so if for example a few people decide to form a little social club where they can go for a few drinks and 'club' together to buy a clubhouse which they collectively own, the money they pay over the bar for drinks is not a trade receipt as this goes into a common fund out of which purchases and other expenses are paid, but any surplus belongs to the body of members as a whole so in reality any apparent profit is money which the members have put in over and above what is required to defray costs - it's their own money in other words.

You can't say that you are not carrying on a trade just because you don't intend it to be one. What does the statement that the proprietor has taken no money out but has invested mean? There may be a negative cashflow but that can happen with any business particularly in a start-up. The fact is people are paying to use facilities owned by your client and the club is a proprietary club and should be taxed as such.

I'd have thought it should be VAT registered but the sporting facilities may be exempt - I'm not a VAT expert. It sounds as if there may be partial exemption.

The sale is a completely different issue. If such large sums are involved the client should certainly obtain proper professional advice rather than off the cuff tips. However it does sound as if there is some sorting out with HMRC to do over the club trade.

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