Taxation in golf – your questions answered

Jenny Yu
By Jenny Yu November 3, 2017 11:10 Updated

VAT expert Adrian Houstoun talks to The Golf Business about taxation in the golf industry; what information do collectors require and, stemming from that, are there ways clubs can cut the amounts they pay?

Many golf clubs have a special tax status. How does it work?

A club established by its members for its own social and recreational purposes is not carrying on a ‘trade’ as such, and so it’s not liable to corporation tax on any surplus generated by transacting with or providing facilities to its members.

Where the activities of the club include commercial transactions with members, this is often described as ‘mutual trading’, and any surplus is also not taxable. It’s worth noting that both club members’ subscription fees, and bar and catering sales to members, are not normally considered trading by the club in any case. Organising a major function such as a summer ball and charging members to attend may be considered mutual trading, however. A review of the club’s income streams would determine whether any mutual trading is undertaken. To ensure mutual trading status is available to exempt this income from tax, the club should be structured so that members share legal ownership of its funds and assets, and its constitution should require funds to be returned to members on eventual winding up.

If the club also provides services on a commercial basis to non-members, any profit that activity generates is the result of trading and would be subject to corporation tax. I would mention in passing that fully commercial clubs are taxable on all their profits.

If a club has income from both members and non-members, how are costs and overheads allocated?

In practice, HMRC normally allows a members’ club to carry on transactions with its members, from which surpluses are not taxable, and also trade with non-members where the profits are taxable. There is no hard and fast rule for apportioning income and expenditure between the member and non-member elements, but it must be fair and reasonable. HMRC has challenged a number of clubs on their apportionment methods in recent years, so care needs to be taken.

How would a golf club identify income from members and income from visitors?

Most clubs will be able to identify green fee income from members and from non-members through their booking system, and often from the amount of the green fee charged for a particular round of golf. However, the difficulty would be with bar and restaurant income, and shop sales. Even with sophisticated tills it is unlikely that a club would be able to accurately differentiate between the different income sources. Some clubs have membership cards where members upload a cash amount and then use that card for bar purchases, and the member gets a percentage discount. Clubs that use such a scheme would be able to identify some bar trading that is mutual.

As for costs, some will be easy to allocate. For example, if members use a card to pay at the bar it should be possible to allocate costs between member and non-member activities. Other costs may be harder to allocate. For example, the costs of course maintenance will have to be allocated by apportionment.

HMRC regards it as reasonable for greenkeeping costs to be apportioned based on course usage by members and non-members – this could be tracked using a record of member and non-member visits. HMRC does not accept an apportionment based on income levels, however, as members would pay a membership fee for access to the course, while non-members normally pay per round.

Some non-golf clubs have strict rules whereby only members can incur and settle bar and restaurant accounts, does that help?

It would certainly help as it implies that all the bar and restaurant income is from members.

Some have suggested that a club could make visitors temporary members for, say, 24 hours, does that work?

In my opinion that does not work, and certainly HMRC takes the view that 24 hours is not enough to bring the club into the privileged category of ‘mutuality’. There have been a couple of cases that HMRC has challenged on the basis that such an arrangement is abusive, so great care is required when planning a particular structure.

What about miscellaneous income, such as bank interest? Is that tax free as well?

Even mutual trading organisations, such as golf clubs, are subject to tax on bank interest and other investment income.

What is the treatment of capital gains?

It depends on the status of the club. If the club is registered with HMRC as a Community Amateur Sports Club (CASC), its capital gains will be exempt, as long as the surplus is reinvested in the club and not distributed to members. However, a members’ club that is not a CASC will be taxable on its capital gains.

Could you remind us about the new CASC rules?

To be eligible to register as a CASC the club constitution must:

  • Be open to the whole community.
  • Be organised on an amateur basis.
  • Have as its main object the provision of facilities for participation in eligible sports.

That would seem to suggest that many golf clubs could be registered as CASCs?

Indeed – a large number of golf clubs are registered and you can look them up on the CASC registration website. The ‘open to all’ requirement means that the club is not allowed to restrict membership to those of a certain ability, such as those with particular handicaps. It is expected that the club would encourage participation at all levels.

If a club has both member and non-member trading activities, it has to allocate costs and overheads, which may attract interest from HMRC. Are there any advantages from having a CASC instead?

Certainly if you qualify as a CASC you can set up a structure that should, in most respects, be attractive. CASCs can generate up to £100,000 of income a year, prior to the deduction of expenses, from non-member trading without breaching the conditions. If less than £50,000 is generated, the resulting profits are also exempt from corporation tax. However, a CASC must have 50 per cent of its members participating in sport (rather than being social members). Being required to be amateur, a CASC cannot pay players more than £10,000 per annum in total for all players, for example you could pay one player £10,000 or five players £2,000 each. A CASC is restricted in the amount it can charge for membership. Finally, the mutual trading exemption does not apply to CASCs though, as already mentioned above, transactions with members are often not as a result of mutual trading in any case.

What are the other potential advantages of using a CASC in your structure?

Chiefly, a CASC can receive Gift Aid on donations. Additionally, the CASC club can set up a trading subsidiary which can carry out the bar and shop trading, and the respective activities are compartmentalised.

Supposing the trading subsidiary makes a trading profit, rather than the CASC itself, is it subject to corporation tax?

Yes, normally it would be. However, the profit can be sheltered by making a donation to the CASC which is usually a structure that is accepted by HMRC.

Are there any VAT considerations?

As you know from various articles over the last couple of years, golf clubs have been the subject of a fair amount of litigation. A CASC, being an amateur sporting club, would receive green fee income that is not subject to VAT, and is classed as VAT exempt. That is attractive to its members but it does mean that VAT on related costs, such as green upkeep, is irrecoverable. If it has a trading subsidiary with bar income and shop sales that are subject to VAT, that trading subsidiary would be able to recover VAT on its costs and overheads.

Adrian Houstoun is VAT partner at top 20 accountant Kingston Smith LLP. Contact him on 020 7566 3802

 

Jenny Yu
By Jenny Yu November 3, 2017 11:10 Updated
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1 Comment

  1. Temporarily ex-golfer November 3, 15:05

    Your last comment as to VAT, whilst correct, may be misleading to clubs. Even if the shop/bar (as examples) VATable activity is carried out within the main ‘club’, and assuming it is VAT-registered, direct attribution under the PE calculations may well allow the same degree of reclaim for related VAT inputs.

    I would also stress the perhaps main advantage of CASC’s – the mandatory 80% council tax reduction, which can be quite beneficial.

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