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