GUIDANCE DOCUMENT FOR CLUBS ON RESPONDING TO THE CASC CONSULTATION

Transcription

1 GUIDANCE DOCUMENT FOR CLUBS ON RESPONDING TO THE CASC CONSULTATION HMRC recently launched a public Consultation on the Community Amateur Sports Club (CASC) scheme. The document can be found on the HMRC website and will run until 12 August. The technical issues that have been hampering the CASC scheme over recent years should have meant that broadly speaking we would have welcomed HMRC's decision to revisit the CASC legislation, however, we feel that HMRC has not taken into account the needs of our sport and indeed sport across the sector and that the proposals in this consultation document may mean that the scheme is no longer suitable for our clubs. It is therefore important that our sport makes the most of this opportunity to ensure our concerns are heard and indeed help to shape future CASC policy. We have compiled this document to help you identify the issues, and with the help of our draft response to the consultation (which we hope to be able to publish within in the next couple of weeks) provide a broadly consistent, coherent and good quality response to it. However, it is essential that you provide supplementary views and evidence to back up your views on the potential detrimental effect of the proposals, particularly the level of membership fees and social (i.e. non-sporting) income. HMRC Officials have also pointed out that they are very keen to receive any additional suggestions and ideas from stakeholders, above and beyond those set out in the document, on how the issues could be addressed. The legislation that enables the proposed changes is contained within this year s Finance Bill so unfortunately it is too late to request that the status quo be maintained. The consultation document is therefore merely seeking views on how the changes will operate in practice and how they should be implemented. Clubs should be aware of the possible implications of some of the government's proposals that have been outlined in the document. Critically the Consultation raises two key eligibility conditions that previously have not been a major consideration when allowing clubs into the scheme:

2 Level of membership fees - HMRC is proposing a cap on membership fee levels (including all participation costs such as the cost of equipment such as boats, buoyancy aids etc.) above which a club will have to make provisions to ensure that its fees are still affordable to everyone in the community. Level of social (i.e. non-sporting) income - This will effectively limit the amount of social income (e.g. bar and restaurant income, venue hire etc.) that can be generated by a club, although ultimately there will be the option to establish a trading subsidiary to enable all clubs to remain in the scheme. We are extremely concerned that our clubs are likely to be adversely affected by these two proposals. Clubs should also be aware of plans to define a social member and a guest for the purposes of the scheme. The following sections of the consultation deal with the eligibility criteria for the scheme: Costs of participation (questions 1-8) Paying players (questions 9-12) Travel and subsistence (questions 13-19) Social members and guests (questions 20-23) Social income (questions 24-28) The consultation also seeks views on the proposed improvements to: Corporate Gift Aid (questions 29-30) Increases to trading and rental limits (question 31) Other suggestions for improving the scheme (question 32) Annex A of the document contains other areas of reform proposed and supported by sport which the government has, disappointedly, decided not to consider. EXPLANATION OF PROPOSALS: Costs of participation This is basically the level of fees that a club can charge its members and still qualify as a CASC. Government feels that this fee should include all the costs associated with participation in the sport or activity (e.g. membership subscriptions, joining fees, additional

3 playing and match fees, equipment costs). This proposal will have a massive impact on equipment heavy sports such as ours. Government s position on this is stricter than the current law and the consultation is seeking to establish which costs associated with participation in the sport should be factored in. The Government s primary concern here is that the costs associated with being part of a club are within reach of the whole community. The consultation is therefore seeking views on what the maximum limit a club should be able to charge up to a maximum of 1,040 per annum ( 20 per week), although there is potential for it to lower than this figure! Sailing, alongside gliding and horse riding for example, is an equipment heavy sport and Government takes the view that as such it is a high cost sport. This is therefore an extremely important issue for our clubs since, if the proposal goes through in its current format, the costs associated with participation in our sport could potentially exceed the final figure that is decided by the Government. The Government is proposing that any CASCs that do eventually end up exceeding the limit (once it is decided) will still be able to qualify for the scheme but they will need to demonstrate that they have taken steps to make their costs affordable to the entire community. This could be by providing cheap or free equipment to hire, making special provisions for those that are unemployed or have low incomes, or by offering cheaper membership deals. We do not yet know what Government means by low income and will be asking this question in our response to the consultation. If clubs do seek to offer cheaper membership deals as a way of ensuring they are open to the whole community, they must allow every member of the club to fully participate (for individual sports the Government is proposing that this should equate to at least 3 times a week (we do not agree and will oppose this), but for team sports would mean being able to join all training session and matches, limited of course by the fact that team selection is competitive and not everyone can play in the top team). Paying players CASC clubs have been, in certain circumstances, allowed to make small payments to players. The consultation plans to formalise and clarify arrangements for paying players. The Government is proposing to allow payments to one individual up to a maximum of 5,000 pa (this would include all payments such as flights and accommodation, and not just a basic wage,). The thinking behind

4 this is that having a well-known ex-professional, for example, may inspire more people to participate in a particular sport. Travel and subsistence The consultation plans to allow more generous travel and subsistence expenses to be paid by clubs. This is particularly directed at clubs which go on tour. The Government proposes to allow reasonable travel expenses for away matches that can be expected to be completed in a day (they have proposed anything less than 4 hours total travelling in a day to fall into this category). For away travel that requires more than 4 hours travel during a single day, clubs will also be allowed to pay reasonable subsistence (meals and accommodation costs) on top of the travel expenses. These rules are proposed to apply to all players and one or two officials/staff. Finally, the Government is proposing to allow reasonable travel and subsistence costs to be allowed for clubs wishing to complete domestic or overseas tours. These tours would need to need to demonstrate that they were in fact genuine sports tours rather than holidays or sightseeing trips. Social members and guests This is linked to the next section on social income in as much as it relates to the Government's concern about ensuring that a club s main purpose is primarily sporting rather than social. The consultation is seeking definitions of a social member and a guest for the purposes of the scheme. It is also keen to collect views on the number of social members that a club should be allowed and still be eligible for the scheme (at present, as a rule of thumb, provided more than 50% of a clubs membership are participating members HMRC have been satisfied that the club is a sports club). Social income (i.e. non-sporting income) In order to ensure that a CASC is a genuine sports club promoting participation in amateur sport, rather than a social club purporting to be a sports club and thereby taking advantage of the scheme, the Government has decided to look more closely at the sources of club income. By ensuring that a club is not generating excessive income from non-sporting activity (e.g. bar or restaurant income, facility hire for social events, sales of equipment to non-members) the Government will be satisfied that the clubs main purpose is sporting rather than social. As such, they have proposed that one of 4 possible tests should be used to satisfy this new income condition:

5 Members income test This would place a limit on the amount of income that a club could receive each year from non-members. Clubs could generate as much as they liked from members but there would a limit (both in terms of a maximum percentage and total monetary value) on income from non-members e.g. 20% of turnover from non-members capped at 50,000. This is Government's preferred option. Basic income test This would simply impose a limit on the levels of non-sporting income generated by a club. This would take the form of an overall percentage and also total monetary value (e.g. the suggested figures in consultation are 30% of all turnover and up to a limit of 100,000 pa). Different levels for different sorts of income test A more complex option that would impose different percentage limits for the turnover generated from different sorts of nonsporting income (e.g. 30% limit on food and drink sales, but 20% limit of hiring facilities). Days open test This would ignore figures and percentages and simply look at when a club's facilities were open for use. The rationale for this is that if a clubs sporting facilities are open then most of the income generated at that time will be incidental to the promotion of sport (e.g. if a club with a bar was only open on training and match days then it would satisfy this test, but if the bar was open 5 nights a week but the club only had sport taking place once a week then it would not pass the test). The Government is prepared to allow some flexibility so that a club would still pass the test if the bar was open for social events on non-sporting days, provided this occurred less than 10 days a year (the rest of the time the sporting activities would need to be taking place while the bar was open). On top of consulting on these proposals, and the various thresholds and limits involved, the Government will also need to determine what will be defined as sporting and non-sporting income; which means yet more complexity, which flies in the face of the light touch approach basis of the CASC scheme. Corporate Gift Aid The Government is proposing to help clubs retain their CASC status where they have high levels of social income. The Government is proposing that clubs could set up a separate trading subsidiary for

6 its social activities and donate its profits under corporate Gift Aid to the main parent company (i.e. the CASC registered club). This is currently common practice in the charities sector, however it is by no means simple and will result in yet another layer of administrative bureaucracy for clubs. The Government is also consulting on whether to allow all donations of money from companies (not just from the subsidiary) to qualify for Gift Aid. This is a welcome proposal. Increases to trading and rental limits Chapter 8 also proposes to increase the annual Corporation Tax exemption limits for CASCs on trading income and rental income from 30,000 and 20,000 to 40,000 and 25,000 respectively. POTENTIAL IMPACT AND ANALYSIS INITIAL VIEW Costs of participation The proposal to include equipment in the overall cost of membership is a huge concern for our sport. We do not support HMRC s assertion that the costs of equipment should be factored in to the overall participation costs as we believe that it can be reasonably expected that members will own their own equipment. It will increase bureaucracy for clubs to have to factor in these costs and moreover it will be impossible in many sports to estimate the cost of equipment. We do not yet know how HMRC will seek to determine these costs e.g. will it be based on the cost of a new boat or an old boat, will there be allowance for depreciation in value, what about new members who come to the club with their own boat, if a club has a fleet of training boats can HMRC reasonably say that a member must have a boat to participate or will it take into account that a member may use a training boat to train and perhaps take part in club events? There are so many variables that, in our view, it makes it impossible for HMRC to define this. If this proposal went through, as an equipment heavy sport we would need to demonstrate that we make equipment costs affordable for the community (e.g. by providing free use of club owned boats or by providing them at a low cost). We know that not all clubs have fleet boats and we may therefore not be able to meet this requirement. In terms of defining full participation, we feel that HMRC s proposal of 3 times a week for individual sports (or whenever it is open if it is open less than 3 times a week) and all

7 training and competition sessions for team sports is too arbitrary and prescriptive. Different clubs have diverse requirements so some clubs may find it hard to satisfy these proposals. Based on the proposed fee level alone, we are concerned that some of our more expensive clubs will come under increased scrutiny from HMRC and would potentially be forced to deregister if they are unable to make the necessary provision to make their fees affordable to the community. We would argue that even where the membership fees of a club may be construed as high (perhaps due to the cost of running the facility), it is still providing a community sporting facility. We feel it would be impracticable for clubs to means test their members in order to determine whether they are on a low income. If there has to be a figure, it certainly should not be lower than the 1,040 and it should be index linked to RPI. Paying players Whilst it is encouraging is that HMRC plan to clarify and formalise the details of when a CASC can make payments to a player, for our sport this is unlikely to have an impact. In any case, a limit of 5,000 pa is too low an annual payment for many clubs wishing to pay an ex-professional (or an overseas player) so in order to have any meaningful impact we feel that his threshold should be higher. Travel and subsistence It is certainly a positive step that HMRC is planning to allow more generous expenses to be paid, but the conditions associated with the proposals are far from clear. The 4 hour proposal is affected by factors such as modes of transport, traffic and weather so it will make it difficult for clubs to implement them in practice. We would prefer a more flexible approach, removing the 4 hour test empowers clubs to make decisions on travel and expenses as they see fit. By limiting travel and subsistence payments to one or two officials, some clubs may be placed in a difficult situation where a number of non-playing participants travel to matches. Coaches, officials, referees and physiotherapists should not be precluded from the arrangements, particularly when they are volunteers. The restrictions for officials should be removed and instead the new rules should apply to all participating members.

8 It is disappointing that the expenses arrangements have not been extended to, for example, students returning from university to play for their home club. Social members and guests This is a contentious area. Whilst HMRC plans to formalise the current rule of thumb that it uses which states that a club primarily has the promotion of sport as its main purpose if no more than 50% of the members are social members, there will be less flexibility around social members and guests. Introducing concise definitions is going to be difficult and is not something that we are comfortable with. At present social members and guests are undefined (although HMRC do have guidance on this) so clubs are free to interpret these areas and agree them with HMRC as they wish. People attending open days or tournaments, prospective members, parents supervising juniors, people to whom facilities have been let, and people attending social functions are all crucial ingredients for many successful clubs and will all come under the microscope here. We are also concerned by the reference to occasional participation resulting in someone being considered a social rather than playing member. Some playing members may, for a host of reasons such as lack of time, personal issues, injuries etc. choose to pay a full member fee yet only participate sporadically. This is a choice to be made by the member and HMRC should not penalise them. Participation should not be restricted to simply playing rather it should encompass coaching, refereeing, committees, working parties (such as facilities management, health and safety etc.) and any other input provided by members that may not sail e.g. honorary members such as retired commodores. Guests should include away team supporters as well as away teams. We feel that these proposals will introduce further complexity and will only make it harder for volunteers and for clubs to be CASCs. Social income (i.e. non-sporting income) We feel that the four tests are not the most appropriate way of measuring whether a club s main purpose is sporting rather than social. Clubs with a vibrant social side generating significant income can still have sport as their main purpose and should not be penalised for this being the case.

9 We do not feel that any of the four options are particularly suitable but we are likely to argue that all four should be incorporated and individual clubs should be allowed to choose which suits them best. This is an area where it is important for you to put forward any alternative suggestions you may have measuring whether a club s main purpose is sporting rather than social. We will argue that this proposal misses the fundamental issue that all profits are reinvested in the club and non-sporting income often provides a lifeline to keep many clubs afloat in austere economic times and has a direct impact on the growth of participation. The tests will act as a bar on diversifying much needed income streams and dis-incentivise small clubs from growing. Taster days, so often utilised by our sport, encourage nonmembers into clubs for the day, introducing them to our sport with a view to them hopefully becoming members. HMRC do not appear to recognise this as these proposals are likely to block participation. The days open test is unlikely to work for many of our clubs, however, where it does it may be one of the best (of a poor selection) of the proposed tests since it is one of the simplest to understand and operate, while it also implies that any social income is most likely incidental to the sporting activities of the club. Aligning the first "members income" test with the corporation tax exemption thresholds of 30,000 and 20,000 pa currently for non-member income (but due to be increased) rather than the percentage/capped limit proposed may be another option worth considering. Since it is likely that the majority of clubs will be caught in this area, it is imperative that HMRC provides more guidance and information on setting up separate trading arms to contain any social income that exceeds any decided thresholds. However, the setting up of a separate trading subsidiary is often complex and time consuming and unlikely to be in the interests of our sport. Corporate Gift aid We are happy with this principle but have concerns that in practice it will be very complicated for the average club treasurer to understand and implement.

10 Increases to trading and rental limits We are happy with these proposals although the increase is lower than we would have liked. We believe the thresholds should be index linked in accordance with RPI. Other improvements HMRC has not taken forward the suggestions for improvement made by the Sport and Recreation Alliance in Annex A of the consultation document. Nevertheless, you may consider advocating some of the following, none of which seem to have been adequately addressed by HMRC: Looking again at the deregistration charge to mitigate its draconian effect. Providing a roll over relief for CASCs which incorporate so that, subject to clearance by HMRC s CASC Unit, clubs do not have to re-apply for CASC status after incorporation. NEXT STEPS: Respond to the consultation. This consultation proposes major changes in the eligibility criteria for the scheme reinforced by new legislation. Existing CASCs specifically may be forced to deregister and, although there will be transitional measures to ease the impact, clubs may lose the cash benefits of CASC status. At the very least it is likely that there will be more red tape for existing CASCs and for those clubs trying to register. It is therefore imperative that we respond to this consultation in great numbers to ensure that our voice is heard. For more information kindly contact the RYA Legal Team on or legal@rya.org.uk