Unregistered Performing Arts Group

Unregistered Performing Arts Group

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Dear All,

Firstly, I must apologise for not being on for a while and hope to remedy that in the near future. All I can say is, I apologise for being busier this year than last!

Anyway BTB. I have been approached by a small performing arts group who are concerned about their current status and need some help. I'm pretty sure of the options available but would readily accept some alternatives.

Basically, the group is currently unincorporated, has an income below £5K and is hence unregistered with either Companies House or the Charity Commission. Their profit is negligible as they are acting as a not-for-profit organisation. The bank account is £1K so, assume for the sake of this exercise the only "surplus" over the years has amounted to £1K in total. They do not currently have a constitution, have no documented charitable purpose and have no board of trustees - just members.

So, given the above, it could be argued that the group is an unincorporated organisation/ association/ club and hence would be liable to Corporation Tax.

However, as the group have been acting with charitable purpose (even though its not written), I suppose, assuming they adopt a constitution (again a written one as opposed to implied), they could be classed as a small unregistered charity on the proviso that their income does not exceed £5K in any 12-month period?

Now... the first issue (apart from entity type recognition) is that, without a board of trustees, were the organisation to be classed as charitable, who would be the trustees? Would it be that all members would be classed as trustees or would statute demand a board be appointed? One of the clear issues which is likely to present the group is that, whilst nearly all amateurs, there are some professionals who are looking to start taking a fee from ticket sales etc. As trustees, they will be unable to do this hence, they must become either; non-board members or non-members. I would like some clarification on this... please... :-)

Secondly, if the income were to exceed £5K in any 12-month period, the organisation would need to consider the best option forward. However, would they simply be able to change to being (say) a company limited by guarantee without chartable status or would they be forced (as I suspect) to become a registered charity (in whatever form) which would clearly pile on the governance and accountability work required.

Thirdly, were the organisation to be deemed "non-charitable" and hence simply an unincorporated organisation, they would need to apply to HMRC for classification for CT (understood) and I assume, in all honesty, this should then be backdated. However, what are the alternatives to this? I have considered as follows:

  1. One member of the group declare the profits/ losses for the year on their personal self assessment - paying tax as relevant.
  2. The group become a partnership with a partnership return and each partner will then declare their share on their personal ITR (which is messy particularly as many are not currently required to submit an ITR).
  3. The group simply be a collection of individual self employed persons however, wouldn't that be deemed by HMRC to be a partnership?

Fourthly, as an accountant, I would err in favour of recommending the group incorporate due to the limited liability issues (the group have a small amount of sound equipment which could easily cause a fire! If they're really unlucky). However, the organisation is concerned that this would cause much more paperwork and cost than being; a small charity (I disagree but would look to receive and independent viewpoint) or an unincorporated organisations (I agree on this but feel the difference is immaterial). Their view is that, as an unincorporated association or unregistered charity, they do not need to prepare or file anything or even retain proper records!

Finally (and this is the stage that I would be walking away), what happens if they do nothing? Clearly they may get away with it. If they don't and they end up with an investigation from HMRC (or even worse - the Charity Commission), who would be deemed liable? I know it's an open-ended question but, would HMRC look to fine each member individually (the issue is clearly not the tax which would in all truth be a few hundred pounds) or just the organisation as a whole? in theory could criminal proceedings be taken against one or more of the group? How would this work for AML?

Whilst I think I understand the options available, I also know there are many thousands of similar not-for-profit organisations out there who (I believe) are simply acting below the radar (and in the same way as this group). Is it therefore that, regardless of everything else, they are right, I am wrong and they are fine to keep going as they are and that I am literally making a mountain out of a molehill (as has been suggested)?

I do appreciate everyone taking the time to read this and even more to those who take the time to answer. Whilst I would happily refer this to a specialist (and I am happy to take criticism for this) I do feel this is one of those matters which would benefit from and open forum (such as AW).

Many thanks in advance

Dave

Replies (2)

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Stepurhan
By stepurhan
19th May 2015 10:38

Charitable purpose?

You say the group has been acting with a charitable purpose. I may have missed it in all the detail but, what charitable purpose. Because, on the face of it, they are a small performing arts group that has made a 20% net profit. A very small trade to be sure, but still a trade.

Whether they set out with the intent to make a profit is, to a certain extent, irrelevant. They have engaged in a business that has made a profit, and a relatively decent one in percentage terms. It would also appear that there is nothing stopping the members as a group from receiving that profit so tax would appear to be due. They are probably too small to get on HMRC's radar, but that doesn't make their assertion that they have to do nothing correct.

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By DKB-Sheffield
19th May 2015 13:13

Hi Stepurhan,

Thanks so much for your response. I agree it's all a little "sketchy"

The group are stating that their charitable purpose is their "work for the local arts community" which is often provided at either £Nil or considerably subsidised rates, which is subsidised by their other appearances (although, I would argue that other appearances would probably constitute a trade). 

However, my view is that; without documented "charitable purpose", a constitution or a board of trustees, they are certainly not a charity (even with a sub £5K income). To my mind that is the same whether they choose to "call" themselves a charity or not. In other words, they are an unincorporated organisation and are subject to CT.

I would be interested in knowing of anyone's experience with similar organisations out there. There must be many such organisations (I know there are likely many in Sheffield) working without true structure or declaring tax.

In fact, one of the members of the group has stated that he categorically knows that no other group in the city has any form of structure or declares tax and hence that there is a legal loophole around which avoids the issue. Hence just citing the fact that the group need do nothing as that is correct because others are doing the same.

As such, I must have missed a key (and probably obvious) workaround which is readily adopted, that everyone knows and that I am blissfully unaware of.

Kind regards

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