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New rules may expose some sports clubs to corporation tax

Guidance from HMRC is updated to take into account the new rules for community amateur sports clubs (CASCs) which came into effect on 1 April 2015. Sports clubs that are registered with HMRC as a CASC benefit from various tax advantages similar to those available charities, but with the added benefit of not requiring the involvement of the Charity Commissioners.

CASCs were created over 13 years ago with the intention of reducing both the administrative and tax burdens on sports clubs but with a broader objective of encouraging participation. Since 1 April 2015, the rules allowing a club to claim CASC status, and thus benefit from the associated tax exemptions, have been tightened up.

The original rules were amended by the Finance Act 2013. This gave HM Treasury power to make regulations specifying the detailed limits to be applied to the new definition a club has to meet in order to continue to qualify as a CASC. The updated guidance supports the regulations.

If a club no longer qualifies as a CASC, their registration may be terminated by HMRC who will choose the date for deregistration and notify the club accordingly of this decision.

This is the only method for deregistration and unfortunately this leaves the former CASC exposed to corporation tax in respect of the club’s property. This is as a result of the CASC rules which deem the club to have disposed of its property and reacquired it at market value at the date of deregistration. No tax exemption is available for any chargeable gain that arises.

HMRC has been writing to the clubs affected to advise that provided they deregister before 1 April 2016, there will be no tax charge on property which is deemed to be disposed of. The aforementioned guidance has been updated accordingly.

In addition, CASCs that have always been fully compliant with the rules prior to 1 April 2015 are being given a 12 month window of opportunity from that date to meet the requirements of the new rules. If any of these are still unable to meet the new conditions after this time they will be deregistered with effect from 1 April 2016.