Distribution of profits and surplus

A club which is an unincorporated association, therefore neither a trust nor charity, may distribute profits or surplus assets among its members subject to any term in the club s constitution. Where the constitution is silent as to any such distribution, then any profits or surplus of assets may be distributed among club members subject to an agreement of the members at a general meeting of the club.

Reimbursement of expenses not taxable

Members of an unincorporated association club must look to the club s constitution to determine whether they may be reimbursed for out of pocket expenses and particularly whether those expenses are allowable. If the constitution is silent as to this matter, then the management committee must decide whether the expenses is allowable as necessary to the daily management of the club, remembering that the management committee is answerable to the general membership.

Reimbursement of expenses by a club to members of the club is subject to the same tax law as a volunteer. Reimbursement of expenses must fulfil the following criteria:

• The expenses was genuinely incurred;
• The expenses was authorised by the club;
• The expense was wholly for the club s purpose and necessary to its management;
• The expenses is properly documented.

Whether the recipient must pay tax on the reimbursement depends on whether the expense is allowed by the Inland Revenue. The Inland Revenue may require the volunteer to verify the expense by providing receipts or other documentation to demonstrate that the expense was actually incurred wholly for the club s purpose and was necessary for the club s purpose.

It is good practice for the club to devise a claim form setting out the volunteer s name, date of expenditure, nature and purpose of expenditure, and the amount. The claim form should allow for a club official to sign approval for the reimbursement and the cheque number, if the reimbursement is made by cheque, should be recorded on the form, with the relevant documentation being attached to that form.

For services rendered - taxable

Payment for services rendered may be claimed by members of the club. A payment may be made where the management committee considers that the payment is owed in the course of the daily management of the club, given that the management committee is answerable to the general membership. Where the club does not usually pay a member for the services that member has rendered, then no payment should be made especially where the constitution is silent on the matter. Also where the service rendered is not considered to be received in the course of daily management of the club, then the payment should be authorised at a general meeting of the membership.

Some payments by a club to its members are termed as reimbursement of expenses although such payments qualify as taxable. Such taxable payments are for expenses not allowable by the Inland Revenue, namely expenses which are not found to be genuinely incurred, or have not been authorised by the club, or have not been wholly incurred for the club s purpose and was not necessary for the management of the club, or have not been properly documented to the satisfaction of the Inland Revenue. Sums which are taxable as income include:

• Lump sum payments for expenses rather than the exact sum spent;
• Payment for expenses which the member would have incurred in any event;
• Mileage payments above the Inland Revenue rates;
• Payments for attendance or payments allowing for a member s loss of earnings while attending to club business;
• Sessional fees or one-off payments for work undertaken for the club, which may be identified as employment. [see 'Finances Minimum Wage Regulations ]

Membership of an unincorporated association does not prohibit a member entering into a contract to provide professional services to the club, unless expressly prohibited by the club s constitution. However, the member contracting on the part of the club must be aware of his duties to the club which include a duty to only enter into a contract if it is in the best interests of the club. This may entail refusing to enter into a contract for professional services with a member but entering into such a contract with a non-member instead.

A member of the unincorporated association club may become an employee of the club. Likewise, an employee of the club may become a member of the club. The law relating to employment will govern the relationship of employment independently of membership.

If you require further assistance please do not hesitate to contact the Legal Department Tel: 0845 3450373 Email: legal@rya.org.uk.