Chess Clubs and Tax
The vast majority of chess clubs, leagues and associations are unincorporated associations, and as such are liable for Corporation Tax on interest, investment income and trading profits to finance other activities.
The only item for most clubs will be bank or building society interest. The default is that banks and building societies will deduct Income Tax at 20% on accounts held by clubs. Interest can be paid gross by completing the appropriate form (Don’t be fobbed off with form R85 – this is for individuals, not unincorporated associations). Prior to 1st April 2006 the nil band of Corporation Tax meant most clubs paid no Corporation Tax, and the Inland Revenue (now HM Revenue & Customs) would issue an exemption certificate from such tax so there was no annual return to be completed. From April 2006 the nil rate was abolished. However the previous position has been restored. The following notice can be found on the HMRC website:
“Clubs, unincorporated associations and property management companies: Small tax liabilities
The nil starting rate of corporation tax has been removed. From 1 April 2006 all companies with taxable profits are liable to tax at a rate of at least 19% (Section 26, Finance Act 2006).
There is concern that many small clubs and societies which previously had no tax liability will now have to complete company tax returns, and pay corporation tax on very small amounts of income as a result of the abolition of the nil rate. Such income is often a negligible amount of bank interest”
This issue was discussed during the Finance Bill debate on 2nd May 2006. The Financial Secretary to the Treasury made the following statement:
“For many years, the Inland Revenue and, latterly, HMRC have not sought corporation tax returns from clubs and unincorporated associations with very small tax liabilities. That practice was established before the introduction of the starting rate of corporation tax, and it will not be affected by the changes in clause 26. Any club or society that is unclear about its tax position should ask its local HMRC office for advice”
HM Revenue & Customs (HMRC) is now putting the practice into the public domain to assist its customers. In the following text ‘club’ means ‘club and unincorporated association’
Where the annual corporation tax liability of a club is not expected to exceed £100, and the club is run exclusively for the benefit of its own members, then HMRC will prevent the issue of a notices to file returns and treat the club as dormant, subject to review at least every 5 years
Robert Richmond, ECF Finance Director 01/08/2007
Chess Organisations and Charitable Status
Under new legislation chess organisations, e.g. chess clubs, may now qualify for charitable status. A number of advantages flow from charitable status. Charities are in a favourable position to attract donations, and they receive tax repayments on donations under the Gift Aid provisions. Charities are also exempt from direct tax for most purposes, qualify for local authority rates relief and receive limited VAT advantages. The Charity Commission has issued guidance on applications for charitable status: www.charity-commission.gov.uk. Applicants should have regard to this guidance. This note elaborates on certain issues relevant to chess organisations applying for charitable status.
Charities Act 2006
A charity is an organisation which has a charitable purpose and is for the public benefit. With effect from April 2008, chess organisations may qualify for charitable status in accordance with new charities legislation, Charities Act 2006. This Act extends the scope of charitable purposes to include the advancement of amateur sport.
Sport is defined in the Act as ‘sports or games which promote health by involving physical or mental skill or exertion’. In Parliamentary debate, the Government recognised that chess satisfied this definition and it is anticipated that the Charity Commission will adopt this position.
This requires that:-
(i) there must be an identifiable benefit or benefits; and
(ii) the benefit must be to the public, or a section of the public.
The Commission has issued general guidance notes on the public benefit requirement, and is expected to issue detailed guidance relating to sporting organisations. It is anticipated that chess organisations will qualify for charitable status provided that they meet the public benefit requirements. This means amongst other things that the membership criteria of chess clubs should be sufficiently open to satisfy the ‘section of the public’ requirement’.
Registration of Charities
Most charities must register with the Charity Commission. However, small charitable organisations i.e. with an annual income of less than £5,000 have charitable status and enjoy the benefits of this status without having to register with the Charity Commission. Many chess organisations may be in this position. Such organisations should apply directly to the Revenue and Customs (HMRC) for charitable tax status: www.hmrc.gov.uk/charities
In the context of applying to HMRC or for registration with the Charity Commission an organisation will need to have a suitable governing document. This is a rule book for the way in which the charity will operate. Guidance is provided in the Charity Commission’s publication ‘Choosing and Preparing a Governing Document’. A governing document is an organisation’s constitution, the formal document which sets up a charity. It should contain information about:
– what the charity is set up to do;
– how the charity will do those things;
– who will run it;
– what happens if changes to the administrative provisions need to be made; and
– what happens if the charity wishes to wind up.
Model governing documents can be found on the Charity Commission’s website. The Charity Commission has issued a Registration Application Pack, to help organisations looking to apply for registration. It contains an application form, a trustee declaration form, guidance notes and a copy of the Commission’s advice on the responsibilities of trustees.
David Anderton/Richard Fries/Melville Rodrigues/William Watson – May 2008