As a nation of keen hobbyists and enthusiasts, clubs and associations play a huge role in our society, allowing members to come together and share their interests – be it in local history or hamsters, tractors or tai chi.
Central to this is the work of the volunteer committee members. A hugely valuable, but perhaps sometimes thankless task!
These not-for-profit organisations can be structured in a variety of ways – from unincorporated associations to charitable companies and Community Interest Companies – each with their own specific features and regulatory requirements.
Example case
As a case in point, I recently spoke with a newly appointed treasurer of a group, who had been gently ‘persuaded’ to take on the role. Her predecessor had done an admirable job of keeping the records up to date, and putting the accounts together for the AGM, but was rather vague on some of the other aspects of the role. This led her to carry out her own internet research, and a nagging worry that they weren’t perhaps meeting all their responsibilities.
The group had been set up over 50 years ago and was for enthusiasts of a particular genus of plant. Members paid a subscription, for which they received publications, could attend garden visits and talks, and had the opportunity to buy seeds and bulbs from fellow members at an annual sale. The new treasurer was concerned that they were not registered with the Charity Commission and had never submitted any returns to HMRC.
After chatting through the various activities of the charity and looking at its constitution, we were able to conclude that the group didn’t appear to fully meet the Charity Commission’s definition of a charity -that is, having charitable purposes only which are for public benefit. Therefore, although its income was over the £5,000 Charity Commission registration threshold, as an association being primarily for the benefit of its members, there was no requirement to register.
On the tax side, after looking at how the charity generated its income, it became apparent that there were currently no activities which could be considered to represent a trade for tax purposes, and as such no tax liability arising from income received from members.
As a non-charity, there was however potential exposure to tax on income not derived from members; the only such source of income in this case being the interest received on their bank deposit account. This had been trifling in recent years, but had increased with the higher interest rate.
Although HMRC will generally not require a return from a club or association which is run exclusively for the benefit of members when the annual Corporation tax liability will not exceed £100, we agreed that a letter to HMRC from the treasurer, explaining the position and asking for their confirmation, would be a sensible step, and help provide peace of mind for the committee.
The next step
Regulation and tax compliance in the not-for-profit sector can seem daunting – whatever the size of the organisation. At UHY we can help you navigate these challenges and advise on which legal structures may be most appropriate.
For more information, please contact Gareth Burrow on g.burrow@uhy-calvertsmith.com, or you usual UHY adviser.
