Taxing clubs and societies

Taxing clubs and societies

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I recently got involved on a voluntary basis with a student group that promotes space exploration, astronomy, astrophysics etc. It runs projects for students, does educational outreach and runs a few events for its members. They used to be affiliated to a charity under an arrangment that effectively made them a charity. A few years ago this relationship ended as the charity ceased. My question is what is their tax position now?

They have assumed that it is unchanged, but I wanted to check. Looking on the HMRC website it seems to imply that all unincorporated societies must regsiter for and pay tax unless their tax is likely to be less than £100 a year. Is this correct? 

The society has built up some funds to use on future activities and I am concerned that these may count as  taxable income if they weren't restricted funds. This isn't an area I've had much involvement with, so any help would be appreciated.

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By zebaa
13th Jul 2011 14:10

Yes, but

'...all unincorporated societies must regsiter for and pay tax unless their tax is likely to be less than £100 a year. Is this correct? 

Yes, by HMRC concesion <£100 TAX take is not worthwhile, so the income would be over £400 before any tax is due .

The real answer to the rest of your question is it depends on the origin of the income. If it is simply members subscription then, because an unincorperated club belongs to it's members, there is no tax charge. In the words of the Judge called to the case it is like transfering money from one trouser pocket to another: the money still belongs to the same person it's just in a different location.

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By nancy hine
13th Jul 2011 14:47

thank you

That's really interesting. I didn't know about that ruling.

Other sources of income include donations from companies/associations to be used on projects - sometimes earmarked for specific purposes (eg educational outreach) and sometimes not, also sometimes the income from stands at the annual conference exceeded the costs of running the conference, this will all be ploughed back into future projects. I'm still waiting for copies of the accounts to see what other income there might have been.

 

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Teignmouth
By Paul Scholes
13th Jul 2011 19:28

Nature of activities

To expand on the above, always best to keep an eye on the nature of all the income, the key test is whether the payer is getting goods or services in return for their payment as this is trading income and, after deduction of related expenditure, any surplus is taxable profit.  With many non-for-profit type concerns any taxable profit can be mitigated by a charitable donation (before the year end) however that is sometimes not possible because of cash-flow or just not wanting to lose use of the cash.

Once an organisation like this is established and it's clear that no taxable surpluses are likely to arise then HMRC will usually excuse any submission for 5 years at a time and will then send out a routine form to check that things have not changed.

Sometimes activities can be a little grey and so have a look at the following page that sets out how HMRC determine trading activities within charities.  You can ignore the bits about exemptions as yours is not a charity but it gives you a flavour. www.hmrc.gov.uk/charities/tax/trading/basics.htm

 

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By eteb3
11th Jan 2021 17:54

I came here looking for something else, but just want to query a few things in case others come this way again:

OP: "They used to be affiliated to a charity under an arrangment that effectively made them a charity. A few years ago this relationship ended as the charity ceased. My question is what is their tax position now?"
This is a relationship that needs further investigation. If they were "effectively a charity" while affiliated, it seems to me likely that the current (well, 2011 ;-) assets of the association are also held on charitable trusts, even if they haven't been designated as restricted funds - assuming the funds were acquired during that affliation. Once a charity, always a charity: the funds will be charitable and need to be treated as such. On the other hand, I can't see how mere 'affiliation' with a charity would make this org a charity also - but then that term could mean many different things. It may be that they were never a charity.

zebaa: "The real answer to the rest of your question is it depends on the origin of the income. If it is simply members subscription then, because an unincorperated club belongs to it's members, there is no tax charge."
To my knowledge this depends on the surplus-distribution and winding-up provisions in the constitution. If assets can be distributed to the members and only the members, that's true. But if they're to be distributed elsewhere, including to charity, the co-ownership rule doesn't apply - or am I confusing that with mutual trading, which has very narrow criteria?

These are an amateur's thoughts - I'm a charity treasurer - and I'm more secure on the first point than the last. Anyone care to put me right or confirm?

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