Frequently Asked Questions

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ACCOUNTING AND OTHER TAX ISSUES

151.   VALUE ADDED TAX

The appropriate VAT rates on income are listed below:-

Standard rated at 17.5%

·        Bar Takings

·        Catering

·        Gaming Machine Income

·        Juke Box, Video Machine

·        Telephone Coin Boxes

·        Admission Charges for Entertainment

·        Sales of Furniture and Equipment

·        Subscriptions for Social and Non Playing Members

·        Gate Receipts

·        Visitor and Temporary Members

·        Advertising (see also exempt)

·        Sponsorship

·        Sale of Merchandise Ties, Shirts etc.

·        Services and Hire of Equipment and Facilities to Non Members

Zero rated – VAT liable at 0%

·        Programmes and Fixture Cards

·        Books, Handbooks etc

Exempt – Not taxable but may affect ability to recover VAT on expenditure:

·        Small Scale Bingo including Session and Participation Charges

·        Lotteries including Raffles, 200 Clubs and Totes

·        Interest, Dividends etc.

·        Playing Members’ Subscriptions

·        Services and Hire of Equipment to Members

·        Pool and Snooker Charges to Members

·        Fund raising events organised for the clubs own benefit, e.g. fete, dinner dance 

Exempt but option to tax available:

·        Rental Income

·        Perimeter Advertising

·        Continuous Hire of the Club’s Facilities

·        Hire of Hall for Meetings, Conferences etc.

Outside Scope of VAT – No VAT is chargeable:

·        Donations

·        Grants

For further details on vatable and non-vatable items Customs and Excise publishes a number of leaflets which are obtainable from your local VAT office:- 

- 701/5             Clubs and Associations

- 701/27            Bingo

- 701/28            Lotteries

152.   VAT AND SPORTING CLUBS

This article deals with the affect of VAT on members non profit making sports clubs; it is intended as a general guide only, professional advice should be obtained on specific matters.  Customs & Excise regards these clubs as a business even if they were not set out to make a profit in the commercial sense. 

VAT registration is compulsory when a club’s taxable income (standard and zero rated) in the preceding twelve months, or the expected income in the next thirty days exceeds the VAT registration threshold.  The threshold is currently £46000 and is revised annually in the Budget.  In calculating income all the sections of the club need to be taken into account, unless the sections have their own constitution, and it can be shown they are financed and managed independently.  Once the club is liable to register for VAT it should notify Customs & Excise immediately as there are penalties for late registration. 

On 1 April 1994 major changes were introduced to VAT as it affects non profit making sports clubs (VAT notice 701/45/94).  The new rules extended the exemption from VAT of services closely linked and essential to sport and physical education; VAT is no longer charged on playing members subscriptions and services and equipment hired to members.  These VAT exempt activities together with other exempt activities of a club will make it partially exempt and could result in restrictions on claiming input VAT on purchases made.  Particular attention will be needed where the club is planning major capital expenditure on sporting facilities. 

INCOME 

All the income of the club needs to be identified and the VAT treatment examined.  The lists below are for guidance only:- 

Standard rated at 17.5% 

·        Subscriptions for social and non playing members

·        Gate receipts

·        Visitors and temporary members

·        Advertising (see also exempt)

·        Television receipts

·        Sponsorship

·        Sale of merchandise ties, shirts etc.

·        Services and hire of equipment and facilities to non members

·        Bar takings

·        Catering

·        Fruit and Gaming machine income

·        Juke Box, Video machine

·        Telephone coin boxes

·        Admission charges for entertainment, bingo etc.

·        Sales of furniture and equipment

Zero rated – VAT liable at 0%

·        Programmes and fixture cards

·        Books, handbooks etc.

·        Cold take-away food

Exempt – not taxable but may affect ability to recover VAT on expenditure:

·        Playing members subscriptions

·        Services and hire of equipment to members

·        Pool and snooker charges to members

·        Fund raising events organised for the club’s own benefit, eg, fete, dinner dance

·        Small scale bingo including session and participation charges

·        Lotteries including raffles, 200 clubs and totes

·        Interest, dividends etc.

Exempt but option to tax available:

·        Rental income

·        Perimeter advertising

·        Continuous hire of the club’s facilities

·        Hire of hall for meetings, conferences etc.

Outside scope of VAT – No VAT is chargeable.

·        Donations

·        Grants

·        Insurance claims

Sponsorship is subject to VAT where clearly identifiable benefits are received, eg wearing a product name on a team shirt.  To maximise the cash retained by the club it is worth determining at the start of the agreement exactly what is being provided.  This is especially so where the sponsor does not recover all VAT; the agreement may contain an element of donation or a payment for perimeter advertising.  Where the sponsor recovers all VAT suffered, the VAT paid by the club will be recoverable by the sponsor, the club will be required to issue a valid VAT invoice.

Advertising in a club programme, magazine or notice board is standard rated; letting of an advertising hoarding at a sports ground or perimeter fence is exempt.

Donations where the donor receives no benefit in return are outside the scope of VAT, this is so even if the person making the donation has a say in how the money is spent.  The donation must be freely given.

Subscriptions may be apportioned between various supplies, for example, Vice Presidents subscriptions may contain an element of donation, payment for magazine (zero rated) and social membership (standard rated). In certain circumstances it may be advisable to obtain a written ruling from Customs & Excise.

Shop sales may contain a mixture of standard rated and zero rated goods.  If the required tilling analysis is not produced at the point of sale it may be necessary to agree a retail scheme with Customs and Excise.

LAND AND BUILDINGS

Recent changes in the application of VAT especially in relation to land and buildings could affect sports clubs in a number of ways.  These are complex areas and it is advisable to obtain specific professional advice. 

Option to tax –It is possible to opt to charge VAT on commercial lettings which would otherwise be exempt.  The advantage of opting to tax is that connected input tax which would not be recoverable if the supply was exempt can be recovered.  This election is irrevocable.

Exempt income – The extension of exemption for sporting club income may result in the restriction in the recovery of VAT on major new sports building projects.

Self-supply – on new work and certain extensions.  A self-supply charge can arise on land used for development, if the club has significant exempt income additional VAT may become payable.

PLANNING POINTS

To minimise the VAT burden on sports clubs careful planning is required:

Registration:

·        Include deregistration in VAT planning

·        Where practicable avoid registration by organisation sections of the clubs as independent units

·        Where registration is compulsory register without delay

Outputs:

·        Agree the VAT treatment at the start of a sponsorship agreement

·        Obtain written rulings from Customs and Excise

·        Analyse income into the component parts, e.g. subscriptions

Inputs:

·        Keep all tax invoices

·        Identify all VAT reclaimable

·        Avoid lump sum expenses

·        Beware of problems with entertainment expenses, eg, visiting teams

Exempt supplies:

·        Know which supplies reduce VAT recovery

·        Reduce exempt expenditure below de minimis, £600 per month

·        Split a club to keep within de minimis

·        Use the most favourable partial exemption method

Accounting record:

·        Keep records properly to save time on Customs and Excise visits

·        Keep evidence of supplies made

153.   AVOIDING ERRORS IN VAT RETURNS

Customs and Excise state that the current failure rate due to simple errors on VAT Returns is on average over 5,000 per week.  In addition the subsequent discovery by Customs of errors in the preparation of the Return can often lead to the imposition of interest and penalties.  Listed below is a checklist to help improve the accuracy of your Return. 

·        Check the liability to VAT on all the income you receive

·        Compare the VAT Return with the previous period and because of seasonal variations the corresponding period of the previous year.  Look
    for and explain any significant variances

·        Check you are declaring output VAT and recovering input VAT in the right period.  Errors are commonly made with cash in hand

·        Check the arithmetic in the Return

·        Use the correct boxes, 2, 8 and 9 are European transactions only

·        Make sure you correct errors from earlier Returns

·        Sign and post the Return well in advance of the filing deadline

·        Check that the outputs shown on your Return agree with the bar takings and other taxable income shown in the Accounts and Balance
    Sheet if they do not find out why

Output Tax Errors:

·        Failure to keep up to date with changing legislation, eg, gaming machines, land and property transactions

·        Failure to account for output VAT on sale of capital asset, eg, furniture, organ

·        Not accounting for tax on drinks to committee members, ‘duty drinks’

·        Stock deficits – cash deficiencies are taxable; deficits of goods are not taxable

·        Income of subsidiary funds are taxable if part of the club, non-taxable if they are a separate legal entity below VAT registration limits

Input Tax Errors:

·        Reclaiming tax without holding a proper tax invoice

·        Not reclaiming all input tax.  Many clubs do not reclaim their Sky TV subscriptions, a VAT schedule for commercial contracts can be obtained
    direct from Sky, telephone 01506 487060

·        Free refreshments – input tax on purchases of drinks and refreshments provided free to visitors is considered business entertainment and not
    reclaimable, ie, visiting rugby teams

·        Reclaiming tax which should be disallowed because it relates to exempt supplies (subject to de minimis limits) or is specifically prohibited

·        Reclaiming input VAT invoiced to subsidiary funds which are separate legal entities
 

160.   CORPORATION TAX AND MUTUALITY

Members clubs who satisfy the rules of ‘mutuality’ are treated favourably for corporation tax purposes.  The effect of the doctrine is that any trading surplus which a club derives from transactions with a class of contributor/participator is exempt from tax and, similarly, any loss or deficit cannot be relieved.  This rule applies whether the club is unincorporated, limited by guarantee or an industrial and provident society.  The effect of mutuality is that subscriptions and any surplus or deficit in the ordinary running of the club for members is not considered in calculating a club’s corporation tax liability.  Club income on which corporation tax is charged includes: 

·        Interest from banks, building societies, local or central government securities, and other similar investment income.  Banks and building
    societies will normally pay interest to clubs gross

·        Rental income

·        Charges made for the private use of club facilities, for example, hire of hall or use of kitchen facilities

·        Capital gains, from the sale of land and buildings or from the sale of shares

·        Trading income that is not related to the provision of services to members

In recent years non-mutual income has come under greater scrutiny by the Inland Revenue,  Golf clubs now pay corporation tax on trading income received from visitors, similarly rugby clubs have been reviewed.  In calculating the corporation tax liability, however, certain expenses can be deducted.  Thus for example, most rugby clubs operate the playing section at a loss after expenses, the playing of the sport being financially supported by the social side.

The Inland Revenue have recently highlighted a problem where bodies which thought they were fully mutual have proved, on closer examination, not to be so.  The common problem appears to be that the standard rules of a company limited by guarantee state that on winding up or dissolution the surplus assets are given or transferred to some other charitable institution or institutions have objects similar to the objects of the company.  Such rules are also frequently required by Sportlot and other similar grant bodies.  While the rule is appropriate for a charity it is a problem for a club, because a club is not fully mutual if on winding up the property is not given to the members.  The same principle applies to industrial and provident societies, to retain mutuality surplus assets must be returned to the members on dissolution or winding up.

Further information on the rules on Income and Corporation Tax for clubs can be obtained from the Inland Revenue’s leaflet IR46.

170.   RETENTION OF RECORDS

In many ways the most attractive idea is just to destroy a club’s records the moment we have finished with them.  This frequently happens when a new secretary is appointed, however, such a procedure is not recommended.  We list below the minimum retention period laid down by convention and legal requirements.  In some cases it may be wise to hold records for longer:- 

SIX YEARS

·        Accounting records, - cash book, bank statements, invoices, paying in counterfoils etc.

·        Payroll records, P45’s, P60’s etc. 

TWELVE YEARS

·        Contract under seal

·        Deeds of covenant (6 years after last payment)

PERMANENT

·        Rule Book

·        Copy of filed rule book amendments

·        Certificate of change of name

DISPLAYING CLUB’S RECORDS

·        Every club should display in a conspicuous position the following records

·        Latest Balance Sheet and auditors report thereon

·        Insurance policy certificates

·        Liquor Licence

·        Gaming Licence (5 year licence)

·        Gaming Machine Licence

Records should be stored on site, and should not be taken to the home of the secretary or other officers.  It is advisable to acquire a storage box for each years records, the box should be clearly marked with the year the records relate to.  At the end of the retention period the contents of the box can be carefully destroyed.  Finally, before you take the ultimate step do a final check to ensure all the records are dispensable.