Presentation on theme: "Feargal McCormack Community Amateur Sports Clubs (CASC) and UK VAT Tax Issues for GAA Clubs."— Presentation transcript:
Feargal McCormack Community Amateur Sports Clubs (CASC) and UK VAT Tax Issues for GAA Clubs
Community Amateur Sports Clubs (CASC) and UK VAT Tax Issues for GAA Clubs
All GAA Clubs operating in the Six Counties come under the rules and regulations of UK Clubs and Societies, and they can be classed in 1 of 3 categories for tax purposes, which are: – Registered as a Charity – Registered as a Community Amateur Sports Club (CASC), or – Have no special tax status The attachment at Appendix 1 outlines the comparisons in respect of each of these 3 options and the different tax aspects. In deciding which of the structures listed in the attachment would suit your club, will be dependent on the exact circumstances of your club and these must be looked at in great detail.
Charity A Charity is a “not for profit organisation”. A GAA club is entitled to be registered as a Charity where the club and its constitution satisfy the conditions below: – It must be set up wholly to promote community participation in healthy recreation which includes promotion of amateur sport – The club must be wholly charitable and open to the whole community without discrimination and be for public benefit, and – A club wishing to register as a charity is not allowed to have a bar facility Registered Charities are exempt from: – Corporation tax on interest and trading income – Corporation tax on income from property – Capital gains tax on disposals of assets – (Reinvestment is compulsory) Charities qualify for special VAT relief on the cost of a new building, which is to be used for charitable purposes (further discussed later)
Community Amateur Sports Club (CASC) A CASC is a “not for profit organisation” that promotes amateur sports. A not for profit sports club will have many sources of income such as sponsorship, merchandising, gate receipts, bar takings rental and advertising revenue. Any GAA club is entitled to be registered as a CASC where the club and its constitution satisfy the conditions below: It is open to the whole community, It is organised on an amateur basis, and It has as its main purpose the provision of facilities for, and the promotion of participation in one or more eligible sports Registered CASCS are exempt from: Corporation tax on interest and income received under the gift aid scheme Corporation tax on any trading income up to £30,000 in any 12 month accounting period - (If it is over £30,000 all income will be taxed at the normal corporation tax rate applicable) Corporation tax on income from property up to £20,000 for a 12 month period – (If the rental income is over £20,000 all the income will get charged at the normal corporation tax rate applicable) Capital gains tax on disposals of assets – (Reinvestment is compulsory)
Gifts to a CASC Donors can make gifts to a CASC and receive tax relief for categories of gifts including: – Donations under Gift Aid – Gifts of trading stock under CTA 2009, s.105 – Gifts of assets at no gain no loss under TCGA 1992, s. 257 – Gifts of plant or machinery under the CAA 2001, s.63(2); and – Gifts by individuals on death or during life under IHTA s.23 Any gifts or payments the CASC makes to other CASCs or to governing bodies of eligible sports will be treated as being made for a charitable purpose under IHTA 1984, s. 23 and to uphold the amateur status of the club (see above) (CTA 2010, s. 660 (6) and (7).
No Special Status A GAA club that decides not to become a Charity or a CASC will fall under the normal rules for Clubs and Societies and – They can run a bar – They will pay corporation tax at the relevant rate on trading income, interest income and rental income – They will pay capital gains on any sale of land and buildings and other assets and the profits from the sale after paying the capital gains can be distributed at the members discretion
VAT – Types of Income Firstly a club regardless of its status may register for VAT in respect of taxable supplies made. The following are examples of common income sources and the VAT status of same. Please note this is not an extensive list and is for guidance only. There are also other sources of income such as grants and donations which are outside the scope of VAT. Input VAT incurred on any expenses relating to this income may be reclaimable depending on the use of the income. Standard RatedZero RatedExempt Merchandising Gate receipts Bar takings Team jersey sponsorship Rental/perimeter advertising (if option to tax in place) Books Magazines Children's clothes Programmes Lottery Raffles Members subscriptions Rental/Perimeter advertising (if no option to tax in place)
Partial Exemption Where a GAA club which is registered for VAT receives exempt income as well as taxable income, it is said to be partly exempt. This means it will not be allowed to recover all the VAT it incurs on expenditure. VAT on costs incurred directly in connection with an activity that generates taxable income (standard rated or zero rated) can be reclaimed but you cannot reclaim the VAT on any costs which are incurred directly in connection with an activity which will generate VAT exempt income, unless that element of VAT is below the de minimis rules.
Minimising VAT It is possible to minimise the VAT burden by some of the following means: Voluntary VAT registration where your taxable expenditure is high; Avoiding liability on supplies by analysing supplies into their component parts and taking full advantage of zero rating; Taking full advantage of the available exemptions identified in ‘Categories of income’; Making the most of partial exemption by negotiating the best method of recovering input VAT with HMRC Timing output tax liability e.g. there will be a longer VAT cash flow benefit for an invoice issued at the beginning of a VAT quarter than at the end. Ensuring that VAT is charged where it is due, since, if you do not, you may be unable to recover VAT on corresponding costs
VAT Treatment of Clubs and Societies One of the main issues that has emerged in the past few years, is the treatment of VAT under the three categories identified earlier. A misperception made by some clubs, is that as their club has registered as a CASC that they actually fall under the Charity Rules for VAT in respect of capital expenditure on new buildings, this is incorrect. A CASC is NOT A CHARITY and the VAT rules are different (see following slide). A CASC may register for VAT and then recover VAT in accordance with normal VAT Rules.
Are CASCs Charities? “A registered CASC cannot be recognised as a charity for tax purposes. However it is open to any sports club which is not a registered CASC to apply to the Charity Commissioners or other Charity Regulator to be registered as a charity as an alternative. Clubs proposing to seek charitable status should NOT apply for CASC status. Where HMRC are satisfied that a club is entitled to be registered they have no option but to register on receiving an application. Where for example a club makes an application to be a CASC having already been registered as a charity, HMRC would have to register the club if satisfied that it meets all the requirements of the CASC scheme. This would mean that the Club would no longer be entitled to be a charity under CA2006”. (Source: HMRC CASC detailed guidance notes )
Capital Expenditure The Capital Goods Scheme (CGS) requires that adjustments must be made to the amount of VAT initially recovered on certain capital goods in order to reflect the differences in the taxable and exempt use of the capital goods over a period of time. The scheme only applies to, single items of computer equipment with a taxable value exceeding £50,000 and land or buildings transactions (e.g. purchase, construction or refurbishment) where the net cost exceeds £250,000. The scheme would therefore apply to, for example, to club grounds and club house. In the case of land and buildings the CGS adjustments are to be made over a 10 year period. If the CGS item is sold within the specified adjustment period this could have adverse affects on the club
VAT Relief for construction services for Charities A charity is entitled to a special VAT relief on the cost of a new building which is to be used for charitable purposes. There are conditions attached to the “charitable use” definition such as: – Used by all sections of the community – A high degree of local community involvement – Otherwise than in the course or furtherance of a business; and/or – as a village hall, or similarly, in providing social or recreational facilities for a local community If charitable conditions are met the charity provides the builder with a certificate and the builder will not charge VAT on his service. It should be noted the exemption from VAT applies only to those materials supplied and installed by the builder as part of his construction services. If charitable use of the building is less than 95% the charity cannot issue a certificate to the builder, the builder must then charge VAT on the full costs. The charity would then need to enter negotiations with HMRC to agree the level of business use assuming the charity is VAT registered but some VAT will be suffered. An example is laid out on the next slide:
VAT Case Study for a Charity Building used 95% or more and Club is a Registered Charity Building used less than 95% for Charitable purposes Building cost £1,000,000 £1,000,000 VAT percentageZero Rated (0%) 20% VAT Chargeable to the ClubNil£200,000 *As noted above the £200,000 will be the maximum amount the charity may have to pay out, but the club would need to look at the level of business use and agree this with HMRC, to reclaim any amount of VAT assuming they are VAT registered
VAT Relief for Construction Services for a CASC A club which is registered as a CASC will always be charged VAT on construction works. The amount of VAT which can be recovered, depends on whether the club is VAT registered, and if yes, the amount of taxable supplies /use of building. An example is laid out in the next slide:
VAT Case Study for a CASC CASC registered for VAT CASC not registered for VAT Building cost £1,000,000 £1,000,000 VAT percentage20% VAT Chargeable to the Club£200,000 *If the club runs a bar or has other taxable income sources amounting to 15% of income then at least 15% of the VAT paid (£30,000) will be able to be reclaimed by the CASC – If not VAT registered, then the Club will have to pay all the VAT and will not be able to reclaim any amount
VAT Relief for Construction Services for a Club that has no Special Status A club which is not a Charity or a CASC will always be charged VAT on construction works. As with a CASC, the amount of VAT which can be recovered, depends on if the club is VAT registered, and if yes, the amount of taxable supplies/use of building. An example is laid out in the next slide:
VAT Case Study for Club with no Special Status Club registered for VAT Club not registered for VAT Building cost £1,000,000 £1,000,000 VAT percentage20% VAT Chargeable to the Club£200,000 *If the club runs a bar or has other taxable income sources amounting to 15% of income then at least 15% of VAT paid (£30,000), will be able to be reclaimed by the Club – If not VAT registered then they will have to pay all the VAT and not be able to reclaim any amount
Partial Exemption VAT Case Study Building Cost 1,000,000 net VAT £200,000 Step 1 Income Sources Gate Receipts 1,500 Merchandising5,000 Bar Takings15,000 Team Sponsorship30,000 Rental (no option)3,000 Membership10,000 Draw/Lotto15,500 Donation20,000 – Non Business 100,000 Step 2 Non Business Calculation = 20% = Blocked Step 3 Partial Ex Calculation based on £160,000 VAT Taxable Sources 51,500 Taxable & Exemp 80,000 x 100 = 64% of input tax reclaimable Therefore of the £200,000 VAT suffered this Club can reclaim £102,400 Taxable 51,500 Exempt 28,500
Deregistration as a CASC Within Ulster, it is understood that there are over 100 GAA clubs that have registered as a CASC. Once the club has registered as a CASC they will always remain a CASC. Should the club be found not be adhering to CASC principles it could be de-registered by HMRC with a significant tax penalty. This means that the club is deemed to have sold its premises and immediately repurchased them at the current market value, whether this has taken place or not. The club would then be liable to pay capital gains tax on the deemed sale which could be maybe tens of thousands of pounds without having the cash to meet the liability.
Planned Capital Expenditure CASC versus Charity Tax status If a club believes it meets the criteria of charitable status, then it should seek charitable status rather than CASC. Once registered as a CASC, a Club cannot register as charity, unless it is first deregistered as a CASC (a Club cannot deregister as a CASC, only HMRC can deregister a CASC). UK VAT, legislation specifically lists a CASC as a type of building NOT seen as similar to a Village Hall.
Conclusion/Action Points If a GAA Club does not have a bar facility, consider applying for charitable status, especially if it intends incurring major capital spend on a new building (Remember the new building must qualify as a “Village Hall type Building” before proceeding). Give careful consideration before applying for CASC. Very complex VAT issues, always seek professional advice.