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Unincorporated club Corporation Tax

Do they have to pay?

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I am acting for a local golf club, who have so far been treated as dormant by HMRC for corporation tax. They regularly make a deficit from non-member trading, but in 2018 they made a large profit of £25k. At that point they sought guidance, and have a letter from HMRC stating that they can continue to be treated as dormant until 2022. The issue has arisen again this year (mainly due to grant income) they will make a £32k profit, and they are asking me if they will need to submit a return and pay tax. My gut feeling is yes, but I don’t understand why, in 2018, with a large profit, HMRC said no. Has anyone come across this? Am I missing something obvious? They have cumulated years of accrued deficit (£-27k).

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By the_drookit_dug
03rd Nov 2020 10:23

You need to read up on mutual trading - here's a good place to start: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim24015

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By richard thomas
03rd Nov 2020 10:24

If they told HMRC that they had made a profit of £25k in 2018 and had a cumulative deficit on trading of £27k, it may be that HMRC deducted one from the other and found that they had made no profit liable to CT and therefore they had no reason to make a return. Seems a sensible pragmatic decision.

Obviously for 2020 they will have a CT profit and they are required, on pain of penalties under Schedule 41 FA 2008, to notify HMRC of that fact by 31 December 2021.

They were presumably loss making (or profit no more than 2k) in 2019. If not the remarks about notifying apply for that year too.

It seems a bit odd that after years of solid losses they make a big profit, then go back to losses (subsidised by grants in 2020). What was the reason for the big profit in 2018?

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Replying to richard thomas:
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By the_drookit_dug
03rd Nov 2020 10:51

I doubt they were taxable trading profits.

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Replying to the_drookit_dug:
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By richard thomas
03rd Nov 2020 11:08

Carlisle & Silloth Golf Club v Smith (Surveyor of Taxes)?

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Replying to richard thomas:
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By the_drookit_dug
03rd Nov 2020 11:24

Profits arising from green fees paid by visitors would be subject to corporation tax. The OP doesn't give any info to establish the split between member/visitor income, although I suppose they're bound to have some.

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Replying to richard thomas:
RLI
By lionofludesch
03rd Nov 2020 11:36

richard thomas wrote:

Carlisle & Silloth Golf Club v Smith (Surveyor of Taxes)?

That was when they were monarchs of all they surveyed.

Monarchs of all they inspect doesn't have the same ring to it, somehow.

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Replying to the_drookit_dug:
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By marysprads
03rd Nov 2020 11:24

the_drookit_dug wrote:

I doubt they were taxable trading profits.


They were green fees paid by non members
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Replying to richard thomas:
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By marysprads
03rd Nov 2020 11:18

Apparently due to the amazing weather, an influx of non-members paying green fees (we are on the Isle of Wight so big tourist numbers)

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Replying to marysprads:
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By the_drookit_dug
03rd Nov 2020 11:43

You need to split out members subs (non-taxable) and visitors' green fees (taxable). Costs will need to be apportioned on a reasonable basis. See https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim24360

The profit you arrive at for the visitors' fee income will be taxable.

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Replying to marysprads:
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By whitevanman
03rd Nov 2020 15:09

Your original post says it was largely due to grant income. Now its bumper year. Which is it. Hint one is taxable the other may not be.

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Replying to whitevanman:
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By the_drookit_dug
03rd Nov 2020 16:26

Possibly furloughed staff earlier on - maybe even benefitting financially due to still receiving members subs - then got a windfall when things opened up and they were swamped with visitors?

In which case the treatment of the furlough grant income is an easy one.

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Replying to the_drookit_dug:
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By whitevanman
03rd Nov 2020 19:01

Golf clubs are generally "mutual" and the income is not taxable. The exception is the money received from non-members. The tax treatment of furlough Grant's etc follows the treatment of the clubs other income and will generally be referrable to mutual activity and therefore not, of itself, give rise to a taxable amount. It may be that non-member income increased after the lockdown but the allowable costs will, presumably, also increase.
There are lots of uncertainties and we can all speculate. Sadly, as happens all too often, the OP has not given enough factual information and has not responded to the points raised here.

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Replying to whitevanman:
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By marysprads
04th Nov 2020 10:49

The bumper year comment was in response to another poster's question and referred to the large profit in 2018, not 2020

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Replying to marysprads:
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By whitevanman
04th Nov 2020 12:13

Then you need to address the question of what the grants are for and whether and to what extent, they are taxable. Only then will you know whether there is, in fact, a taxable profit and any issue.

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By Matrix
03rd Nov 2020 15:41

If the fees are now from non members and you also receive grants then I don’t know why the profits would be exempt. Did HMRC know the club was previously trading?

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