Sport Governance Conference

In Partnership with the Legal Panel Framework

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Mewn Partneriaeth â’r Fframwaith Panel Cyfreithiol

LEGAL WORKSHOPS GWEITHDAI CYFREITHIOL

Understanding and Managing Your Tax Obligations Deall a Rheoli Eich Rhwymedigaethau Treth

Ray McCann (Pinsent Masons LLP)

Sport, tax and NIC Ray McCann Partner Pinsent Masons LLP

The game plan

• • • • •

First half

Big picture The basic requirements Payments to players Sources of funding “Charity” status • • • •

Second Half

Getting it wrong Record keeping HMRC posture Penalties

The Big picture

• • • • • • • Individuals pay income tax on income Companies pay corporation tax But, “Company” includes clubs, associations, all are all potentially taxed as companies So Governing Bodies within corporate tax and VAT regimes Payments to individuals potentially involve tax and NIC Stamp Duty land tax on property acquisition All with different and complex compliance requirements

The Big Picture

• HMRC approach may discourage sponsorship • Tax like football is a game of two half's, get it wrong in the first, pay the price in the second and always lose on penalties • But tax also has advantages that may suit some sports organisations

Some basics

• If you organise a sport and charge or receive other payments, tax will be an issue • Sponsorship payments may be taxable receipts • Payments to players may be subject to PAYE and NIC issues • “Mutuality”

Corporation Tax

• • • • • The rules require: Notification to HMRC Returns to HMRC Payment of tax Record keeping Rate of tax reducing to 20%

PAYE and NIC

• Most payments to employees • Also non cash benefits, “Dispensations” • Expenses often the subject of HMRC audit • Record keeping essential • • “Status disputes” Class 1 and Class 1A NIC • Personal Liability notices

PAYE and NIC

• • Travel, generally tax free Regular payment may be earnings if linked to appearance • • Gifts or benefits to players may be taxable Testimonials, care is needed

VAT Basics

• Individuals, companies, unincorporated associations and partnerships can, generally, register for VAT.

The key test is whether it is conducting a business activity

requires activity pursued with reasonable continuity on "recognised business principles".

- usually this •

The compulsory registration threshold is £79k

voluntarily register.

. If your “VATable" business income is over £79k per annum, you are required to register for VAT with HMRC. Below that threshold you may • Registration for VAT means you must account to HMRC for VAT (output tax) on your "VATable" supplies of goods and services. It also means that you can, usually, recover VAT incurred on your costs (input tax).

What is VATable income?

• All business income, unless it is exempted or otherwise relieved from VAT.

• Typical VATable income includes: admission charges/gate receipts, sale of merchandise etc.

• Sponsorship income is usually subject to VAT if the club supplies something in return to the sponsor, e.g.: advertising in programmes, on bill boards, on shirts etc.

What is VATable income?

• • •

Fees to enter sporting tournaments are usually exempt

from VAT where they are used to fund prizes awarded in the competition.

Funding grants awarded by public bodies

, local authorities etc or not usually subject to VAT. This is a complex area with constantly changing law and advice should be taken.

Certain services supplied by clubs to its members

which are closely linked to sport or physical education – e.g.: refereeing/umpiring; coaching and training; membership subscriptions etc.

Recovering VAT incurred (input VAT)

• Can usually recover input VAT to the extent it is used to make supplies of goods and services subject to VAT.

• Input VAT incurred in making VAT exempt supplies of goods and services cannot be recovered.

• A pro rata calculation should be carried out to establish the level of input VAT recovery on overheads. Known as a partial exemption method. • Certain input VAT is "blocked" from recovery, e.g. that relating to business entertaining.

Funding

• • • Borrowings, interest generally tax deductable if business Watch VAT if lenders obtain benefits Sponsorship, can be a taxable receipt if linked to advertising and may also involve VAT issues • Gift Aid

Community Amateur Sports Club Scheme

Conditions – • • • • • be open to the whole community be organised on an amateur basis have as its main purpose providing facilities for, and promoting participation in one or more eligible sports meet the location requirement meet the management condition

CASC – Tax Benefits

• • • • • Exemption from Corporation Tax (subject to limits) Trading, property and interest income and chargeable gains Gift Aid relief but watch membership subscriptions Gift on death, “tax efficient” Gifts of assets tax free to donor

The second half

Getting it wrong

• • • • • Understanding what is required Record keeping Being alert HMRC posture Penalty kicks

HMRC posture

“In your response you provided notes including reference to the sponsorship agreement, this does not provide the level of detail that I require. What I would like to see is the supporting correspondence within the business showing that full consideration was give to the decision to spend £X on sponsoring a football club. Please tell me whether an advertising agent was used and if so provide me with the documentation they produced including presentations, illustrations or projections”

•

Recent HMRC letter to a client

HMRC posture

“

Her Majesty's Revenue and Customs has opened a new front in the battle to collect the £32bn in tax it estimates goes unpaid in Britain every year – pursuing football coaches. HMRC has written to 3,300 coaches understood to have a UEFA level qualification – the more professional end of the game – calling on them to disclose and pay any outstanding tax or face possible criminal charges. The Football Association, which was under a legal obligation to co-operate, has supplied the names and addresses of the 3,300 licensed coaches.”

The Guardian May 2013

HMRC posture

“Research by HMRC has shown that posts are being advertised for work at football clubs in areas such as sport science and marketing, as well as match day roles - such as ball boy supervision, or work as mascots - which appear not to comply with NMW rules. HMRC is now taking pre-emptive action to safeguard workers by initially contacting 44 football clubs, to ensure that employers are not breaching minimum wage rules.”

Government announcement 20 August 2013

And of course football in particular…

• • • • Glasgow Rangers FC HMRC’s attack of the football creditor rule “Leading football clubs are being targeted by HMRC over perks afforded to players and WAGs…” “THE Treasury has ordered the taxman to get tough with football clubs because of the millions in unpaid taxes that it misses out on if they go bust…”

Extra time

• • • • • • HMRC want any organisation with tax issues to get it right HMRC takes a tough stance on non-compliance Cash receipts cause difficulties with record keeping and other issues Sponsors can find that HMRC take some persuading Smaller clubs may benefit from charity type exemptions Penalties can be severe for non-compliance

Penalty kicks

• • • • • • • • • The maximum tax penalty is 100% HMRC approach to penalties is aggressive Not paying on time Paying incorrect amount Not submitting returns Not evidencing entries on returns Not keeping proper records Not deducting PAYE/NIC Not accounting for VAT

Contact

• • • • Ray McCann [email protected]

020 7054 2715 07738310346

Combining the experience, resources and international reach of McGrigors and Pinsent Masons

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