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Taxation treatment of football community mutuals

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A. Corporation Tax

The information detailed below is a general overview of the corporation tax treatment of Football Community Mutuals and is in no way a definitive guide, which should be relied on when completing the necessary tax return. This overview is based on the assumption that the Mutual is registered as an Industrial and Provident Society (IPS) and its constitution is based on the Model Rules for a Football Community Mutual. The Inland Revenue produce a leaflet - Clubs, Societies and Voluntary Associations (IR46), which deals with the subject in slightly more detail, and includes an example of how to complete a corporation tax return.

1. Trading Income - general

IPSs are treated as a corporate entity for tax purposes, and as a general rule they are normally liable to corporation tax in respect of their profits or surplus computed in accordance with normal rules applicable for companies. Certain rules apply specifically to IPSs and have been detailed below as appropriate. The only time that trading income will be exempt from corporation tax is to the extent that it is deemed to be mutual trading.

2. Trading Income - Mutual trading

If the Trust is trading in such a way that its members and its customers are the same persons, the trade for tax purposes yields no profit or gains and therefore there will be no assessment to tax. In order that the Trust falls within this exemption, there has to be the necessary element of mutuality. In particular it is essential that the profits should be capable of coming back at some time and in some form to the person to whom the goods were sold or the services rendered.
It is unlikely that a Football Community Mutual will meet these requirements, as they are not capable of distributing any of their surplus to the members.

3. Types of Income

Detailed below are some of the most likely types of income that a Football Community Mutual may receive and the relevant taxation treatment.
  • Bank/Building Society Interest – All interest received is chargeable to corporation tax and must be reported on a corporation tax return. Bank interest is usually paid gross, without the deduction of tax. Building Society interest is normally paid after tax has been deducted. It is possible, however, to complete a declaration confirming that the Trust is a company for corporation tax purposes. This declaration will enable the building society to pay interest without the deduction of tax.
  • Sales to members – This is likely to constitute trading, and as a general rule the profit on sales (income less allowable deductions) to members will be taxable. A special rule applies if the Trust makes no sales to non-members.
  • Sales to non-members – Again this is likely to constitute trading, and the Trust will be liable to tax on the profit made on sales to non-members.
  • Donations – Donations of money are not taxable. In addition the sale of donated goods, providing the goods have not been significantly changed before the sale, also not liable to corporation tax.
  • Fundraising – Fundraising for a charity generally falls outside the scope of corporation tax by virtue of an Inland Revenue concession. However, it is unlikely that a Football Community Mutual will fall within this concession. Accordingly, it is necessary to follow the requirements below to ensure that at least part of the money raised will be exempt from corporation tax.
It is open for the organisers to set a basic minimum charge for an event, which will be taxable. For certain types of events the Inland Revenue require a minimum basic charge. In the case of films, concerts, sporting fixture or similar events the minimum charge, which is taxable, must not be less than the usual price for the particular seats at a normal commercial event of the same type. In the case of dances, dinners and similar functions the basic minimum charge is not less than the costs incurred in arranging the event.
Supplementary voluntary donations will not be taxable if the following criteria are met:
  • publicity material states that anyone paying the minimum will be admitted without further charge;
  • additional payment does not secure an additional benefit; and
  • a further contribution is ultimately left to the ticket holders discretion.
  • Members’ subscriptions – General subscriptions or contributions made by individual members are not taxable.

4. Expenses

Day-to-day running expenses usually met from members’ subscriptions are not taken into account when calculating the corporation tax liability. Expenses incurred in earning a profit from trading are allowable deductions for taxation purposes.

5. Trading losses

Football Community Mutuals will be granted special treatment in respect of the offset of tax losses.

6. Share and Loan payments

Share interest or loan interest will not be treated as a distribution providing that the Trust makes a return to the Inland Revenue within 3 months of the end of an accounting period, giving the names and addresses of all persons to whom share or loan interest amounting to more than £15 has been paid without the deduction of tax.


This area of VAT is extremely complex and accordingly this is only intended to provide an overview of the situation, and not give any specific or definitive VAT advice.

It is first necessary to establish whether the Trust will need to be registered for VAT purposes. It may be that there will be a compulsory requirement to register; alternatively, it may be that the Trust decides to become voluntarily registered.

In order to be registered for VAT, the Trust will need to be making supplies in the course of their business, so one needs to establish whether or not the Trust is carrying on a business.

1. Business activities

Non-business activities fall outside the scope of VAT and are those activities not concerned predominately with the making of supplies for a consideration. These will include activities such as the granting of free admissions to a Trust’s premises for non-members or providing free literature to non-members. Provision by a Trust of facilities or tangible benefits available to its members for a subscription are deemed to be a business. There are very few circumstances where a subscription will not be regarded as business income.
Case law has established a business test for VAT purposes, and whilst it is not appropriate to discuss the detail of this here, it is sufficient to say that the activities have to be conducted on a regular basis and on sound business/ commercial principles, broadly for a consideration (monetary or non-monetary).

2. Non-profit making

Certain types of income can qualify for exemption from VAT where the Trust is a non-profit making body. An important indicator in establishing if the Trust is non-profit making is whether its constitution precludes any distribution of profits or surpluses of income over expenditure to members, shareholders or other persons. In the absence of such a clause in the constitution, HM Customs & Excise are likely to accept that a body is non-profit making if it can be shown that in practice it does not distribute its profits - for example by reference to prior year accounts.
If a Trust is non-profit making it will not be wholly exempt from VAT, but will receive special VAT treatment if it falls within one of the types of organisations specified in the relevant legislation. The most relevant types of organisations in the present case are bodies of a philanthropic or civic nature, which have objects of a public nature.
A philanthropic body is defined as a body that does good work for the direct benefit of the general community or a particular section of the community, or is designed to promote the well being of mankind. A civic body is one, which has objects, which promote rights and duties of citizens in matters of public interest and public affairs, and whose objects do not solely or mainly benefit its members.
In order to obtain the special VAT treatment, it would be necessary to satisfy HM Customs & Excise that a Trust falls within either of these definitions.

3. Types of supply

Assuming that the IPS is either registered for VAT or intending to become registered, it is necessary to consider the type of VATable supplies that it may make.
  • Subscriptions - Subscription income is liable to VAT at the standard rate unless it falls within the exemption in 2 above. Some of the subscription money could be zero-rated, e.g. when part of the subscription paid relates to the provision of a publication. Where some of the benefits of membership are identifiable supplies of zero-rated or exempt goods and services, the subscription may be apportioned.
  • Entry/Admission fees – will be a standard rated supply for VAT purposes and it will be necessary to charge VAT at 17.5% standard rate. Such fees will not be VATable if the amount is a true donation and the person would be admitted without making a payment.
  • Provision of food and drink – will be standard rated for both members and guests. Food will only be exempt to the extent that it is ‘cold’ and provided for consumption off premises.
  • Fundraising events – This will be a taxable supply for VAT purposes unless the Trust is deemed to be a qualifying body under the necessary legislation it is likely to be treated as a taxable supply for VAT purposes.
  • Donations – Donations will only be outside the scope of VAT if they are given entirely voluntarily and on the basis that the donor will be receiving nothing in return.
  • Supplies by Trusts falling within 2 above – Supplies to members will be exempt from VAT, provided they are available without payment (other than subscription), and that they are referable only to the aims of the organisation. There are several exemptions to this rule, including: right of admission where non-members pay; supplies for which an additional charge is made; and supplies to non-members.
Fundraising events will also be exempt from VAT, providing the event is organised exclusively for its own benefit, or the event is organised for an exclusively charitable purpose.

It will only be necessary to charge VAT if the Trust makes taxable supplies in the year which exceeds the threshold for the tax year (£55,000 for 2002/03 for illustrative purposes). In these circumstances, the Trust will be required to register for VAT. Taxable supplies are all supplies (examples above), which are not exempt from VAT. The value of a supply is determined by the consideration given for it.