In 2015 HMRC comprehensively revised the rules that applied to the ‘new style’ sports charities known as community amateur sports clubs – otherwise known as CASCs.
Clubs registered with HMRC under the scheme enjoy substantial tax breaks, which include 80% discount on their rates bill. The scheme is attractive because many of these clubs occupy or own substantial premises. This often amounts to critical financial relief for the club.
One of the key consequences of the CASC legislation changes are strict limits on trading turnover with non-members. The two relevant thresholds are £50k and £100k. The former being the amount a club can trade without paying tax on the profit, and the latter the universal limit before the club is disqualified as a charity.
These trading caps have obliged a substantial number of clubs to funnel their trading income into newly created trading subsidiaries. This is done in order to either avoid receiving a corporation tax bill and/or to operate within the permitted guidelines. Under the new rules, a club’s trading arm can gift 100% of the profit back to the club, provided the correct agreements are in place between the new company and the club.
The rush to incorporate
Suddenly thousands of new trading companies are being created, or are ready to do so.
Being not-for-profit organisations, clubs do not usually wish to pay tax or become disqualified from their benefits. So the rush to create new limited companies grows apace in this sector.
However, in the process of restructuring, clubs (and especially those that are unincorporated) are becoming nervous about unfamiliar exposure to accounting scrutiny. Their old ways of drawing up basic income and expenditure accounts are now a thing of the past and accountability is knocking on the door.
Many clubs are approaching accountants with a view to creating a new commercial business allied to the club. This kind of accounting work carries with it both the potential of acquiring several new clients, but also the risk that something in the setting up and running of the joint (club and company) operation – could go wrong.
As we mentioned earlier, the legislation is new (and largely untested) therefore the potential pitfalls considerable.
Feedback from accountants to ACASC (Association of Community Amateur Sports Clubs) is one of general concern over a lack of step-by-step information in the set-up of new club operations. This concern is allied to the fact that although the parent club itself is an amateur, not-for-profit organisation, it is also fully responsible for a company that could be turning over a substantial six-figure sum.
It is not uncommon (for example) for a rugby club with a substantial social following to be turning over £200k via its bar and catering operations, but with ultimate control of the whole arrangement in the hands of a committee of a relatively inexperienced, unpaid volunteers.
Clubs will often expect the accountant to understand or offer guidance in matters that are more related to internal club policies than pure accounting matters.
Challenge for pro-community accountants
Having said all this, the pro-community accountants that do take up the challenge of working with client clubs and who are prepared to undergo a steep-ish learning curve could be well rewarded for their efforts.
There are over 100,000 amateur clubs in the UK. Due to recent changes in rateable values, substantial numbers are preparing to apply to HMRC to become CASC registered - if only to ease the growing pressures of a non-domestic rates bill.
Once registered, the club will usually begin making preparations to avoid a Corporation Tax demand by planning the set-up of its subsidiary. For accountants with client clubs that are members of ACASC, the path will be relatively smooth. But for others, the research and groundwork preparation can be both time-consuming and nerve-wracking.
In further articles, we will consider some of the key points for the club accountants to consider.
This will enable them to work more productively and efficiently with their client clubs and help retain a satisfied client base in the world of amateur sport.
About Michael Martin
Michael Martin is CEO of ACASC (Association of Community Amateur Sports Clubs.) The association runs an advisory service for amateur sports clubs and accountants. We also liaise between our professional partners and clubs and with HMRC over compliance matters in amateur sport. Helpline number: 0800 084 2312