Corporation and other taxes

Corporation Tax And Mutuality

Members clubs are subject to corporation tax and have to submit a corporation tax return to HMRC annually.

Fortunately members clubs who satisfy the rules of ‘mutuality’ are treated favourably for corporation tax purposes. It is a basic principle of taxation that you cannot make a taxable profit by trading with yourself, and this means that in the case of a club which is owned by its members and which exists to provide them with facilities, any profit made from the income received from the members is not liable to tax. The effect of the doctrine is that any trading surplus which a club derives from transactions with a class of member is exempt from tax. This rule applies whether the club is unincorporated, limited by guarantee or a registered society.

Thus 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. Mutuality will usually be meet if members contribute to a common fund e.g. by paying subscriptions, etc. and share in that fund, any surplus should be tax free; conversely any deficits will not be tax deductible. The constitution of the club must forbid the distribution of profits.

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

Complications can also arise where only part of the club’s activities is mutual, that with members and part from non-members which is taxable. In recent years non-mutual income has come under greater scrutiny by the HMRC, Golf clubs now pay corporation tax on trading income received from visitors. Calculating taxable income will involve splitting income from a single source, such as the bar, to ascertain taxable sales to non-members. The direct cost of earning that income can be offset in full e.g. the cost of the brewery purchases and bar staff wages, HMRC will also allow an apportionment of overhead costs to be deducted provided they are computed on a reasonable basis.

Community Amateur Sports Clubs (CASC)
Where taxable and non-trading income is substantial sporting clubs may benefit by applying for CASC status, see separate article. Most members’ social clubs will not be eligible for CASC status as they will not meet the requirement that 50% of the members must participate in sporting activities.

Corporation tax penalties
Members clubs frequently fall into arrears with their corporation tax affairs, the problem arises because only certain of the club’s income is taxable and Officers and their agents incorrectly believe all income is exempt. We are often contacted by club’s being chased by HMRC debts collectors because they have not declared taxable income and have accumulated penalties and interest often as large as the corporation tax liability.

Where a club has been requested by HMRC to submit a corporation tax return or they have income subject to corporation tax they have to pay any tax due within nine months of the club’s year end and submit a corporation tax return (form CT600) to HMRC annually within twelve months of the year end.

Making Tax Digital (MTD)
MTD for VAT was introduced from April 2019. However, MTD for VAT is only the first stage, the timing for corporation tax has yet to be confirmed but it will not become mandatory before at least 2021. See separate article.