Updates from the RYA Legal Team on Stamp Duty Land Tax for unincorporated clubs wishing to incorporate, and charitable clubs and VAT on capital build projects.
Guidance on Stamp Duty Land Tax for unincorporated clubs wishing to incorporate:
We have been working with more and more clubs who are considering changing their legal status from unincorporated associations to become incorporated.
There are a number of options in relation to what legal form an incorporated club might take such as a charitable company limited by guarantee, a charitable incorporated organisation or non-charitable company limited by guarantee. Our Guidance Legal Structure of your Club sets out the various forms available.
Many unincorporated clubs hold land which, upon incorporation, would be transferred to the new incorporated club. Stamp Duty Land Tax (SDLT) is payable where a chargeable land transaction occurs. Where the incorporated club is a charity, no SDLT is payable on the land transfer as there is usually an exemption available to charities. If the incorporated club is not a charity, the transfer may be caught by SDLT, even where the land is transferred for free. We have therefore produced Guidance on SDLT for clubs considering incorporation to help them determine whether they may be liable for SDLT.
We have produced a suite of documentation to help guide clubs through the incorporation process.
Charitable clubs and VAT on capital build projects:
It is prudent for clubs embarking on capital build projects to consider the VAT implications. It is worthwhile pointing out that the VAT zero rate on the construction of new buildings is available to charities but that it is NOT available to CASCs (Community Amateur Sports Clubs registered with HMRC).
We have been alerted of HMRC’s efforts to reclaim VAT from charitable clubs in relation to previously completed capital build projects after completion.
The law is clear that the VAT zero rate is only available when a property is used for a “relevant charitable purpose” (which essentially means used for a non-fee charging purpose) or when it is used as a village hall or similar. Where charity sports clubs charge membership fees this means they are not using buildings for a “relevant charitable purpose”.
HMRC appear to take a rather harsh line with sports clubs and experts in the field advise us that this has increased following the Court of Appeal decision in the Longridge on the Thames VAT case which determined that the club was used for business activity because most of the children were charged modest fees to take part in water sports, therefore their new building was not used for a “relevant charitable purpose” because there was fee charging activity.
We therefore suggest that charitable clubs seek specialist tax advice before embarking on capital build projects as getting it wrong can be extremely costly.
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