Corporation Tax

Importance of Corporation Tax

Corporation Tax is a tax on the taxable profits of organisations which include clubs, societies, associations and other unincorporated bodies. It is not just limited to companies.

It is important for sports clubs, county boards and councils to be aware that they have no special corporation tax exemptions compared to a normal business.

Whether the club is a limited company or unincorporated association does not make a difference. If a club ignores corporation tax it is putting itself a risk of interest charges, backdated tax bills and penalties over a number of years from HMRC.

The information below is designed to be a summary of the key Corporation Tax information that should be considered by clubs, county boards and councils.

The Corporation Tax section on HMRC’s website is useful when clubs, county boards and councils wish to go into detail in any of these areas. This can be found at: www.hmrc.gov.uk/ct/index.htm.

The clubs, county boards and councils’ responsibilities

The officers of a club, county board and council are responsible for its corporation tax affairs.

In an unincorporated association the officers may be personally liable and HMRC would generally pursue the Treasurer for any unpaid corporation tax and associated fines.

Income and gains subject to corporation tax

The club, county board and council has to identify the various types of income it receives and determine whether any of them are subject to corporation tax.

If a club, county board or councils’ income is obtained from its members (e.g. membership fees, affiliation fees and bar income) in order to provide them with facilities for no or little profit, generally this income will not be subject to corporation tax under the mutual trading principle. Income from non-members is generally subject to corporation tax.

Income and gains that are usually taxable include the following:

  1. Investment income (e.g. bank interest)
  2. Income from property (e.g. rentals)
  3. Trading income for non-members e.g. fundraising and the bar
  4. Capital gains (e.g. sale of land or buildings)
  5. Sponsorship

Grants are generally exempt from corporation tax where no goods or services are received in return.

Deductible costs

In order to calculate the taxable profit earned by the club, county board or council, the taxable income needs to be reduced by the costs associated with generating each source of income. To be able to deduct these costs from the income they must be allowable for corporation tax purposes.

For example –

  • Generally no costs are allowable against investment income.
  • Costs that are allowable for property income generally include insurance, repairs, rent, rates and management fees.
  • Expenses which are incurred for the purposes of the trade are allowable against trading income e.g. the cost of running a fund raising event which generates taxable event income.

Tax relief on capital expenditure

Tax relief is not generally available for a club, county board or council purchasing fixed (long-term) assets, unless the asset qualifies for tax relief under special rules known as capital allowances.

There are complex rules around capital allowances and professional advice should be sought.

Where the club, county board or council carries on a trade, expenditure on plant and machinery qualifies under these rules e.g. furniture, computer equipment, tractors and mowers.

A capital allowance is given generally on the cost of the asset. An Annual Investment Allowance is available of 100% of the cost of most plant and machinery up to a limit of £250,000 per annum. Writing down allowances are available on costs above this figure again for most plant and machinery of 18% per annum on a reducing balance basis .Both allowances can be offset against trading income.

Tax relief is not generally available on the cost of a new building itself but plant and machinery capital allowances may be available on its content.

Charity and CASC benefits

If a club has Community Amateur Sports Club (CASC) status there are some corporation tax exemptions on certain types of income and gains.

If a club, county board or council has Charity status it effectively receives corporation tax exemption on all income and gains.

Paying Corporation Tax on time

If a club, county board or council is due to pay corporation tax, it must inform HMRC that this is the case, file a tax return online and pay the due amount.

Club, county board or council must pay any tax due nine months and one day after the club, county board or councils’ accounting period end i.e. after the period end date on the club, county board or councils’ accounts.

The return must be filed within 12 months of the year end.

Failure to complete these tasks may result in interest charges, backdated tax bills and penalties from HMRC.

There is no minimum level of taxable profit.

Record keeping and HMRC audit

Club, county board and councils must keep proper records to support their accounts and corporation tax returns.

HMRC have a year after the return is filed to conduct an audit which may result in an adjustment (usually upwards) to the tax liability leading to payment of additional tax, interest and penalties.