As a community amateur sports club (CASC), should you now be considering setting up a trading subsidiary?
New rules coming into force from 1 April 2016 may make it harder for some CASCs to meet all the requirements necessary to continue benefiting from their current tax advantages. There is, for example, a new income limit restriction as well as new rules covering payments to players.
If CASCs are likely to breach the new conditions, setting up a trading subsidiary could be a sensible response. This would remove income-generating activity from the CASC, so addressing the risk of breaching the new restrictions. The trading subsidiary can then gift aid all its taxable profits back to its parent. If the subsidiary is 100% owned by the CASC, as long as it makes its gift aid donation in cash within nine months of the year end, the payment can be treated as made in the earlier accounting period. This nine-month window should allow enough time for an accurate calculation to be made. This is important because, if too little gift aid is paid to the CASC, a tax liability arises in the trading subsidiary. However if too much is paid, as long as it is paid in the later period, this can be offset against that year’s taxable profits.
Certain conditions must be met in order for the gift aid payment to be considered valid. It must be in cash, for example, and the payment cannot be immediately lent back to the subsidiary. If the gift aid payment is not considered valid, a corporation tax liability could arise.
Setting up a trading subsidiary will involve some costs, of course. The subsidiary company will need to file both annual accounts with Companies House and annual tax computations with HMRC. It will also need resourcing – back office support and staff, for example. Typically this will, at least initially, need to be provided by the CASC, which must charge the subsidiary an appropriate fee, likely to be chargeable to VAT.
The benefits and costs of setting up a trading subsidiary should be assessed carefully, as well as the practical steps involved. But if a CASC is in danger of losing its status, this is a route worth considering. Click here to download our factsheet.
Please get in touch with Deborah Jennings
for further information and advice.