Sports Clubs: HMRC Status

Debate between Damian Hinds and David Mowat

Tuesday 9th February 2016 Westminster Hall

[The Exchequer Secretary to the Treasury (Damian Hinds)]

It is a pleasure to see you in the Chair, Mr Bone, and to have the opportunity to respond to my hon. Friend the Member for Warrington South (David Mowat) in this important debate. I commend and congratulate him on bringing it to Westminster Hall.

Successive Governments have recognised the benefits of sporting activity in improving people’s health and wellbeing, and in strengthening community cohesion. I welcome the opportunity to express the Government’s continued support for community amateur sports clubs, which, among other things, play an important part in consolidating our Olympic legacy, as my hon. Friend mentioned. It is right that the Government should use the tax system, as well as other forms of support, to encourage the benefits offered by those clubs.

There are about 7,115 community amateur sports clubs, and they certainly deserve the Government’s backing. The new regulations for CASCs continue to ensure that support through the tax system is correctly targeted at them. The community amateur sports club tax scheme provides a number of vital charitable tax reliefs to support local amateur sports clubs. Following a detailed review by HMRC of how the scheme was operating under the old rules, which showed that they were confusing and difficult to understand, the new CASC regulations came into effect on 1 April 2015. They included, as my hon. Friend said, a new income ceiling of £100,000 for non-member income.

Extensive consultation took place before the new rules were formulated. The Government formally consulted on outline proposals for reform of the scheme in June 2013 and published their response that November. Between November 2013 and September 2014 officials were engaged in regular and intensive dialogue with representative bodies individually, as well as establishing a forum for representatives of the sports sector.

The forum has a membership drawn from several sports’ national governing bodies and representative organisations. It met regularly during development of the new policy and the drafting of the new regulations. Particular issues of interest to members were aired at the forum and more detailed working group meetings ensured that HMRC understood specific issues for different sports as it developed the rules. As a result, changes were put in place to address the genuine concerns of some members of the forum, and the draft regulations were amended to increase the generosity of the social membership rule. Throughout the consultation process HMRC worked closely with officials from the Department for Culture, Media and Sport and its agency, Sport England.

The new regulations have made the scheme more generous than it was, which makes membership more attractive. However, the scheme works by providing tax advantages only to those that need them, and it is of course important that taxpayers’ money should be spent wisely. To take an extreme contrast as an example, clearly a youth football club with a tuck shop should get the tax advantages, but a pub with a darts team should not. That said, the new rules were developed to enable as many clubs as possible to remain within the scheme. Eighty-five per cent of existing CASCs are not affected by the new rules, as they operate fully within both the old and new rules.

It is worth noting that HMRC has not received evidence that the rules significantly increased the administrative costs for clubs within the scheme. However, some clubs inevitably are disappointed that the rules are not more generous. HMRC has continued to give help and guidance to clubs to help them remain within the scheme, and the dedicated HMRC charities helpline remains available to CASCs. If my hon. Friend or the club in his constituency wish to have a further conversation, they can do so by calling the helpline on 0300 123 1073. I would also be happy to arrange for either him or representatives of Warrington sports club to meet with officials to discuss the situation.

Some clubs may decide that complying with the new regulations is not financially viable and decide to leave the scheme instead. While we will not know the numbers involved accurately until after the 12-month grace period expires on 1 April 2016, we know that clubs are applying for CASC status at approximately the same rate as in 2014-15, before the rules changed.

The main purpose of a CASC must be the promotion of sport by providing facilities for the whole community. Clubs that generate a disproportionate amount of their revenue from non-sporting activities may be primarily social or commercial clubs. If a club’s main purpose is not sporting, it is obviously not eligible to be a CASC. It is important that the generous tax reliefs available only go to genuine amateur sports clubs. The Government recognise that many sports clubs raise funds from social functions and other non-sporting activities to subsidise membership fees and consider that the £100,000 income threshold provides sufficient flexibility to do that.

The consultation document was clear that the tax reliefs afforded to CASCs are not meant to support clubs that could be seen as competing with other commercial businesses such as pubs and restaurants, as my hon. Friend said. A higher limit could increase the risk of a state aid challenge because clubs could be seen to be engaging in economic activity. I must make it clear that in the event of a successful state aid challenge, HMRC would have no alternative but to seek to recover what would then be deemed underpaid tax from each club—a situation that all of us would want to avoid. The stakes when considering any potential state aid challenge case are therefore really quite high.

When considering the state aid threshold of €200,000 over three years—my hon. Friend was right to raise this important point—the relevant rules require all forms of potential state aid provided to be taken into consideration. As well as the tax reliefs provided by the CASC regime, CASCs also benefit from lower business rates and may in addition receive grants or other forms of financial assistance. The amounts in question will vary from club to club. The income limit is set at a level that seeks to ensure the de minimis limits will not be breached once business rates and any other form of financial assistance are taken into consideration.

I reiterate that the main purpose of a CASC must continue to be the provision of facilities for an eligible sport or sports, and the encouragement of participation in those sports. If a club has a lot of non-sporting income, it is unlikely to be primarily a sports club. The new CASC regulations allow clubs to earn up to £100,000 a year from non-member trading and property income. There is no limit at all on the amount of income clubs can generate from members, apart from property income from members, which also counts towards the £100,000 cap.

During consultation, representations were made for a more flexible approach and perhaps a more bespoke income limit. However, that would greatly increase the complexity of the regime and regulations. Different rules for different sports or sizes of club would increase the administration for both clubs and HMRC, and that approach was rejected on these grounds.

If clubs that are already registered as CASCs have high levels of non-member trading income and/or property income and do not want to be deregistered, they may choose, as my hon. Friend said, to consider setting up a trading subsidiary in the same way as many charities have trading subsidiaries. This is important: any income generated by a trading subsidiary will not count towards the club’s income threshold.

Trading subsidiaries should be owned and controlled by the CASC, allowing the subsidiary to trade but not be entitled to CASC reliefs. However, the trading company may gift-aid its otherwise taxable profits to the CASC and not pay corporation tax. Similarly, separate supporters’ clubs may be set up to assist clubs with high levels of junior membership—another important point that my hon. Friend raised—in meeting new rules for participation levels where it is a requirement that a non-sporting parent or guardian is also a member.

HMRC cannot register clubs that do not meet the income condition. It expects all clubs affected to take steps to reduce their level of non-member trading and property income, and in many cases that will be by setting up a trading subsidiary. The new income condition provides a sound regulatory foundation for the CASC scheme going forward that is fair and in keeping with one of the founding principles of the scheme: to support small volunteer-run community amateur sports clubs.

[David Mowat]

I listened carefully to the Minister’s point on state aid. The fact that the de minimis limit applies to all forms of aid is, of course, reasonable. I make the point again, though, that my local club—I do not believe there is any reason to think Warrington sports club is atypical—would be under the current de minimis state aid limit by a factor of four or five. It is hard to see that the figure of £100,000 is, in fact, responsive to that de minimis state aid limit.

[Damian Hinds]

To reiterate, the de minimis limit is €200,000, which applies over three years.

[David Mowat]

To actual aid?

[Damian Hinds]

To actual aid, in all its forms. Officials had to, appropriately, make a judgment in designing a scheme that would apply across the sector on the safe level of non-member income, as a generally applicable rule that would keep clubs safely under that limit. The figure they arrived at for the limit was £100,000. In the particular case of my hon. Friend’s local club, which he rightly and ably represents today in Westminster Hall, I would be happy to arrange for further discussions on appropriate avenues forwards.

The vast majority of clubs currently in the scheme have been unaffected by the new income condition, and detailed guidance is available to them and to those considering joining the scheme in the future. That means the tax reliefs available under the CASC scheme continue to be a vital element in supporting small clubs within the scheme to deliver the benefits of participating in sport.

The new non-member income threshold continues to encourage and support community sports clubs. The Government believe the cap is set at an already generous level and strikes the correct balance between the interests of the CASCs to raise extra funds and the interests of local businesses. The scheme should not provide tax reliefs to clubs that derive significant amounts of income from non-member social and commercial activities, as that was not what it was designed for. I close by thanking my hon. Friend once again and commending him for bringing this important debate to the House.

Question put and agreed to.