Taxation of coronavirus grants

This article, written by our retained tax adviser, Richard Baldwin MBE, provides an update to his previous article which gave an overview of the tax treatment of coronavirus business support grants to grassroots sports organisations. It does not cover the tax treatment of earnings support schemes such as the “furlough” scheme for employees. It draws on conversations with community sports clubs including those registered as Community Amateur Sports Clubs (CASC’s) in the last 12 months.

Government provided much needed financial support to grassroots sports clubs in 2020 and 2021 during successive Coronavirus lockdowns and restrictions. In particular property owning clubs received valuable business support grants from their Local Authority funded by Central Government.

Legislation was introduced last year to tax these business support grants and other related grants. Clubs are now facing the prospect of reporting these grants for corporation tax purposes. HMRC published detailed guidance on the tax rules and technical discussions have taken place with HMRC specialists help clarify the position. However the special corporation tax rules which apply to members’ sports clubs mean that reporting the grants is not straightforward. Indeed many clubs which have not registered for corporation tax are unaware that they may now have to do so.

The legal position is that these grants are fully taxable whether a club has been liable to corporation tax in the past and filed returns or not. The only possible exceptions are-

1. If the club is a “mutual trader” for tax purposes and then only if it has no other business income e.g. from bar sales to non-members or renting its facilities in which event only part of the grant will be taxable.
2. If the club is registered as a Community Amateur Sports Club (or charity) and is within the relevant corporation tax exemptions for property or trading income.

It is worth explaining some of the practical issues with these exceptions.

Often clubs say that they are not subject to corporation tax (and have no need to file CT returns) since they are mutual traders; a long standing tax rule that means that where a club is trading with its members by providing services on a commercial basis and where the members are entitled to share in those profits and assets the trading profit is not taxable. In other words the club cannot make a profit out of itself as a mutual trader.

This is rarely the case for members’ clubs since HMRC does not generally regard a community club’s provision of sporting and recreational facilities for its members as a trade. The club’s activities usually lack the necessary elements of commerciality required for a trade; therefore there cannot be a “mutual trade” since there is no trade. Secondly, even if there is a trade with members, the profits and assets do not belong to the members where on a winding up the surplus assets go to local sporting or other causes not the members. Many clubs have constitutions with winding up clauses specifying that the surplus assets cannot go to members as a condition of grant funding so the mutual trading requirement is not met.

The absence of the mutual trading exemption means that the unregistered club will have to bring into account 100% of the LA grant since, contrary to some published tax guidance for sport, there is no provision in the legislation to apportion part of the grant to non - business income e.g. from the provision of non - taxable member services.

The position for CASC’s is more promising; whilst there is no exemption for the grant itself, where the club has property and trading income it is apportioned between these taxable sources and added to the existing taxable amounts. If there is only one taxable source it is attributed in full to that source. If it has neither source of taxable income HMRC regards the LA grant as property income because its receipt was linked to, and depended on, the rateable value of the club’s property. However the £50,000 pa and £30,000 pa exemptions for gross trading and property income respectively are still available for tax exemption. A CASC will need to carry out a detailed review of its accounts to see whether exemption is available but frequently it will be.

Where the grant is taxable, deductions will be available for tax deductible expenditure which may reduce the taxable amount of the grant. The position is however not straightforward and will require careful consideration in working out the figures.

Those clubs which have had no taxable income and have not previously needed to file corporation tax returns are now likely to be required to do so if they have received any Coronavirus support grants. Tax returns are likely to be required for more than one financial year. All grassroots sports clubs in receipt of these grants (or indeed other grants such as Sport England and Summer and Winter Survival Fund grants) should review their corporation tax position now and take further advice where necessary.

We recommend that clubs review CT returns already filed for their treatment of LA grants and bear this in mind for any returns not yet filed.  RYA affiliated clubs have access to tax consultant, Richard Baldwin MBE; FCA; CTA, who has been working with us on CT issues. We provide a free 30 minute consultation with Richard on CT which can be accessed via the Legal Department.