If a golf club that is supposed to be non-profit distributes surplus members fees to the directors. What are the implications and how will this be taxed on the director as they can't take dividends.
By distributing surplus funds does this mean it is more of a commercial business and therefore VAT and Corporation Tax should apply ?
Replies (25)
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Leaving aside the tax implications, is it permitted? Or are the directors just pulling a fast one hoping they won’t get found out? What makes these amounts “surplus” and what does the club’s constitution say?
Only two directors who will be members will have voting rights
I note the future tense.
Confirmed here: https://www.accountingweb.co.uk/any-answers/limited-company-by-guarantee
So the whole thing is sounding fraudulent - tell the nonvoting members it's not for profit whilst ripping them off. Careful, Sanjay, it sounds like you are helping them with this (possible) fraud.
They are taking directors fees
PAYE
But never come across this before
MUST declare the related party transactions in the accounts
When did the members approve?
What was done last year?
How long has this been going on?
Did they change accountants as a result of the accountants challenging the payments?
Have a phone call with prior accountant
Directors don't take dividends. Shareholders do. They are often the same at small business level, but you need to remember the distinction.
You need to establish why the funds are being distributed at all before anything else. As others have said, is it a legal distribution in the first place. Also is it a non-profit or a not-for-profit (again, distinct) and what sort of company is it? (limited by shares, limited by guarantee, CIC, etc)
It is a subtle difference.
Broadly speaking a non-profit will be set up for a beneficial purpose in the eyes of the law. They will usually be tax-exempt and have specific uses for their funds. Charities will be non-profits.
A not-for-profit will be set up for a specific purpose, though not a charitable one. It is not intended to make profits and any profits it does make will not generally be distributable. This is the category I think your query falls into, since members clubs (where "profits" are ploughed back in for the benefit of members) is a common form of not-for-profit.
In either case, a simple distribution will usually not be allowed.
Distributions (if permitted) would be made to the members and not the Directors.
The profits are taxable and VATable unless there is an exemption. There is no exemption simply for being a non-profit organisation.
It is very hard to see how this manoeuvre could be permitted by the Articles of Assoc. It appears a fundamental breach of the purpose of limit by guarantee. Urgent review by the Directors required, with solid professional advice to guide them.
You do know that you can turn down appointments right?
I'd maybe reconsider whatever marketing policy is bringing this to your door.
Random thoughts
Do the Mem and/or Arts require:-
i]Accounts to be sent to Members
ii]An audit?Are you the auditor?
Company law requires accounts to be filed but as presumably a micro company the accounts would not disclose this payment
What is the document authorising this proposed payment?
Who disenfranchised the members?
This is conspiracy to defraud.
Take legal advice
Bit old but have a look at this article (its still relevant) and answers your question:
Companies Limited by Guarantee - get the details right
https://www.accountingweb.co.uk/business/finance-strategy/companies-limi...
It states:
"Distributing profits/commercial status
As there are no shares any company profits cannot be distributed to the members as dividends; members also cannot have claim upon company assets
Pre 28 April 2013 the Model Articles for companies limited by guarantee included a clause prohibiting distribution of surplus profits but rather to reinvest them such that all profits were applied to the purpose for which the company was established.
The current Model Articles are silent on the subject.
Payments to board members can only be as remuneration (unless repayment of expenses only) and not dividend
If the CLG is a charity the Charity Commission has strict guidelines regarding payment to board members/trustees"
Where is this money coming from?
What about the members / stakeholders?
Too many red flags here.
Too many red flags as Tom and many have said, but more literally, I think that unless the Articles specifically state that the Directors can receive a salary (or any remuneration at all for anything) or that profits can be distributed (which it would be rather amazing if they did say), then they can't be because obvs the co is in breach of its own Articles if they do.
Thank you this is most useful
My problem is trying to work out if a CLG is a façade for a profit making business. I have a feeling it is.
A surplus would mean the CLG would have Corporation tax but this could be avoided if the CLG paid a a salary upto the Surplus to the directors ?
Of course it could.
But the earlier question would be "are such payments lawful in terms of the company's Articles ?" If the answer's no, your own question is irrelevant.