HMRC (tax authorities) are currently undertaking targeted tax inspections at sports clubs, businesses and coaches. Here are five top tips for not for profit sports clubs for passing a tax inspection, i.e. not having to pay additional tax or penalties!
It’s important that your constitution clearly states that you are a not for profit organisation so that there can be no room for doubt. Ensure you have a dissolution clause that states that any assets remaining go to another not for profit organisation.
You should also ensure that your club host an annual general meeting and that all of the committee can be voted on/off. Committee meeting should be held as required by the constitution and detailed minutes taken.
Not for profit clubs will not have to pay tax on profit arising from trading with its members so long as said members spending money at the club benefit from any surplus made – this is known as MUTUAL TRADING and is non taxable income.
Money spent at the club by non-members is potentially liable for tax and therefore you should ensure that this income is monitored and any tax due from profit made is declared to the tax authorities. This is an issue causing a lot of clubs problems because they haven’t been declaring this income, e.g. sponsorship income.
It’s important to know about the different ways you can pay for someone to provide you with a service in your business or club – self-employed, casual worker, employee, limited company or volunteer with expenses – and how to pay them according to HMRC regulations.
Make sure you have proof of their status (particularly important for self-employment) and that you have processed all of the necessary paperwork required.
A number of clubs have been fined for paying volunteers so called expenses because they were deemed to be a payment for services by HMRC. Some clubs were also procecuted for not paying minimum wage to the volunteers.
You should only only reimburse actual out-of-pocket expenses to a volunteer, which means that the volunteer should submit a claim form with receipts to show what they have had to spend as a volunteer that they otherwise wouldn’t have.
We recommend that you engage an accountant or tax expert to represent you during an inspection but they will charge you a hefty hourly charge for such work.
A great solution for this is to take out tax inspection insurance (available from some accountants or from an insurance broker), which will cover the costs of an accountant/tax expert to represent you for the duration of an inspection. Sadly, it won’t cover the costs of any tax bill!
If you have a question you would like answered, you can submit a question on our Facebook page at www.facebook.com/gbsport – we look forward to hearing from you.
GBSport members can contact us on 01952 201657 for specific telephone and email advice and support on this and any other business matter.