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COMMUNITY AMATEUR SPORTS CLUB STATUS AND PAYMENTS TO PLAYERS IN COMMUNITY RUGBY
The guidance notes for Community Rugby Clubs set out in this document cover some important issues relating to the payment of players by Clubs which are registered as CASCs or are considering registration and which we hope will be helpful to you.
The notes explain that there are only a limited range of expense reimbursements i.e. broadly travel to away matches which CASCs can reimburse their players. Clubs should review their expenses policies carefully since even if a player is classed as an "Amateur" under the RFU’s Regulations, this may not allow the Club to register as a CASC. If this causes a problem it may be possible to set up a separate club structure for those players who do not satisfy the CASC expenses test as the guidance notes explain.
The guidance notes by no means cover all of the issues that may arise and a Club may need to address. Therefore please do seek specialist advice from your Club's accountant if you require guidance.
CONTENTS
1. The CASC scheme in outline
2. Background to this paper
3. Objective of this paper
4. The ‘ordinary benefits’ of an amateur sports club
5. The payment of expenses
6. Payments for volunteers, coaches and ground staff etc
7. Establishing a separate structure for development clubs
8. Action for community rugby clubs
Appendix 1 – Ordinary benefits
Appendix 2 – Payments to members
Appendix 3 – HMRC questions & answers
COMMUNITY AMATEUR SPORTS CLUB STATUS AND PAYMENTS TO PLAYERS IN COMMUNITY RUGBY 1. The CASC scheme in outline
Rugby clubs have to face all of the usual taxes that commercial companies face without special exemptions. Tax costs can often arise because of a lack of awareness amongst voluntary officials The main taxes that clubs face are:
· Corporation tax on income and gains.
· PAYE and National Insurance Contributions in respect of employees.
· Value added tax (VAT) if the club has annual taxable turnover which exceeds the registration limit.
· Business rates subject to discretionary relief if the local rating authority chooses to grant it.
· Stamp duty particularly on transfers of property.
It is however possible for a club which qualifies to register under the Community Amateur Sports Club (CASC) scheme. This enables the rugby club to enjoy reliefs including:
· Exemption from Corporation Tax subject to certain limits in respect of trading and income from property.
· Full Corporation Tax exemption for interest, Gift Aid donations and chargeable gains.
· Individuals can make gifts to the club using Gift Aid.
· Mandatory business rates relief of 80%.
For Corporation Tax reliefs to be maintained the clubs income and gains need to be applied for qualifying purposes and if this is not the case the reliefs may be lost.
No particular legal form is required for a community rugby club to register as a CASC. It may be unincorporated, registered as an Industrial & Provident Society or registered as a company limited by guarantee. The RFU recommends incorporation and provides appropriate Guidance Notes, sample Rules and model Constitutions under each of these options. It is also provides model constitutions which comply with the CASC rules.
In order for a club to qualify to be registered as a CASC:
a) Its membership must be open to the whole community and the facilities must be
available to members without discrimination.
b) Its main purpose must be the provision of facilities for and promoting participation
in one or more eligible sports i.e. in the case of rugby clubs, rugby.
c) It must be organised on an amateur basis.
It is (c) that in practice is causing most difficulties since there are a number of conditions to be satisfied by the club:-
1) It must be non-profit making – this means that its constitution must require any surplus income or gains to be reinvested in the club and does not permit any distribution of club assets in cash or in kind to members or third parties.
2) Its constitution must provide for any assets on the dissolution of the club to be applied for approved sporting or charitable purposes.
3) It must provide for members and their guests only the ‘ordinary benefits’ of an amateur sports club.
It is in relation to rewards for members who are players that these conditions become important in the context of CASC registration.
Detailed guidance can be found on the CASC scheme in a dedicated website maintained by the Central Council of Physical Recreation www.cascinfo.co.uk and there is also some useful guidance on the CASC section of HM Revenue & Customs website www.hmrc.gov.uk/casc. Finally the community rugby section of the RFU website provides further background information on CASC registration www.community.rugby.com .
2. Background to this paper
Sport is competitive – sports clubs play in leagues and competitions. Particularly in the major spectator sports of cricket, rugby union and football the desire of a club is to be successful and effectively climb the sport’s ‘pyramid’. Clubs may pay the players in their top team but have many other teams including juniors all of whom are amateur i.e. payments are not made to players. In a typical club climbing the pyramid over 90%
of the players would not be paid even though the first team might be. Winning is part of what makes clubs tick and attracts individuals in their community. A club may start off life not rewarding players at all but as it develops and becomes more successful it might wish to pay some players in order to progress up the pyramid.
This will give rise to problems if the club is registered as a CASC since one of the main principles of the scheme is that the club should be amateur. Some clubs may be put off registering as a result because there is a potentially significant tax cost if they lose CASC status and are deregistered by HMRC. Others which reward player members may not be registered in any event.
Deregistration has a major consequence for a club which has assets that are chargeable assets for capital gains purposes. Typically this would be if the club owned the freehold or a long lease of its ground. Where such a club is deregistered it is deemed to have disposed of all its assets including its ground at the date of deregistration for its then market value. A capital gain may then arise equal to the excess of the market value of its qualifying cost base for tax purposes. This excess will be subject to tax at the corporation tax rate. This might in the worse case scenario lead to the insolvency of the club.
This paper considers two common situations:
a) A club is considering making payments to playing members which might breach the ‘ordinary benefits’ provision.
b) A club wants to move up the sports pyramid and reward players accordingly.
Whilst it is each individual rugby club’s responsibility to determine whether the CASC scheme is worth pursuing and that decision will depend on individual facts and circumstances some general guidance might help clubs through this difficult area.
3. Objective of this paper
The objective of this paper is to provide general guidance to community rugby clubs on specifically what payments to players would be allowed without compromising CASC status so that non-registered clubs consider their own situation and can be encouraged to register. Secondly, it provides guidance on the available structures to enable a CASC registered club to avoid the disastrous consequences of deregistration by setting up a separate structure for say, the first XV if it wishes to reward players. Also a club paying players currently can consider setting up a separate structure for its ‘non-amateur’ side and thereby encourage it to register.
4. The ‘ordinary benefits’ of an amateur sports club
One of the conditions of the scheme is that a club should provide to members and their guests only the ‘ordinary benefits’ of an amateur sports club. These are defined in the legislation and reproduced as Appendix 1. The legislation also contains a let out so that clubs can pay members for providing services such as coaching etc.
Certain reimbursement of expenses are included as ‘ordinary benefits’, but only in respect of reasonable travel expenses incurred by players and officials travelling to away matches and coaching courses. None of the other benefits involve payments to the player/member himself.
A club is however permitted to:
a) enter into an agreement with a member for the supply of goods or services or
b) employ and pay remuneration to staff who are also members of the club.
This is provided the terms are approved by the governing body of the club on an arms length basis. HMRC guidance notes contain examples of what is permissible under Paragraph 3.9 ‘Payments to Members’ which is reproduced as Appendix 2.
It is clear that a rugby club rewarding players for playing with no other coaching, junior development etc duties would be outside HMRC’s guidelines. This is confirmed by the ‘questions and answers’ section of HMRC’s CASC website under the question ‘Can a club pay players?’ which is reproduced as Appendix 3.
A ‘development club’ seeking to register cannot therefore provide player members with payment for playing other than reimbursement of their reasonable travel expenses for travelling to away matches and to provide club owned sports equipment. This gives rise to a number of practical questions and issues for community rugby clubs seeking to register as a CASC which have the ambition to progress up the sport’s pyramid.
5. The payment of expenses
Community rugby clubs which only have ‘Amateur’ players as members may be able to satisfy the ‘ordinary benefits’ test. Such players do not receive Material Benefit under the RFU rules. Under this definition they are allowed to receive the reimbursement of proper expenses for reasonable travel, accommodation, subsistence or other expenses in relation to the game. Reimbursement of all such expenses which the RFU guidelines allow the Amateur to receive would not always qualify under the CASC rules. The rugby rules allow many more expenses than just travel to away matches to be reimbursed. Taking each category of allowable expense for the Amateur in turn:
The current RFU mileage allowance should be acceptable for CASC purposes but only in relation to away matches. If travel to squad sessions and home matches is reimbursed then this would create a problem.
· Accommodation is not an allowable reimbursement for CASC purposes.
· Meals and subsistence are unlikely to be accepted as reasonable post match refreshment.
· The reimbursement of travel expenses must be reasonable. It is up to the club to demonstrate this. A club reimbursing sums in respect of say air travel or car hire in respect of away matches would need to show that this was an appropriate use of funds compared with other forms of travel available.
The definition of ‘ordinary benefits’ is tight and would not cover any home and squad session costs and the reimbursement of expenditure on playing kit, boots, training gear etc since the definition only applies to club owned sports equipment. Travel to representative matches would not normally be reimbursed by the club and therefore should not create a problem. In accordance with RFU rules expenditure coming within the CASC definition would need to be voucher supported. It is unlikely that round sum allowances would be acceptable. The legislation talks about the club providing the ‘ordinary benefits’ and it is considered that if payments are made directly by sponsors or unconnected individuals without the clubs involvement then this should not prejudice the position. But where the sponsorship relates to the club and not the individual player HMRC may consider this to be provided by the club even though this is paid direct to the players.
Generally the definitions under ‘ordinary benefits’ to determine ‘amateur’ status for CASC purposes are much narrower than those acceptable to HMRC in other areas. Thus for example for PAYE, NIC and National Minimum Wage purposes HMRC have accepted that players without an employment contract in sport who play ‘for the love of the game’ can receive a much wider class of expense reimbursement. Accordingly, the ‘ordinary benefits’ rule will deny CASC registration for many clubs which only have Amateur players.
6. Payments for volunteers, coaches and ground staff etc
There is a relaxation of the rule that player members cannot be paid where they are employed and paid in another capacity or supply goods and services to the club in each case provided their arrangement is properly approved and agreed on an arm’s length basis. HMRC Guidance Notes provide two examples of a groundsman and players who have coaching and development roles. These are acceptable but the case of a rugby team whose first team are engaged on full-time playing contracts but with a small number of promotional activities would not be acceptable. Where clubs are seeking to take advantage of payments to members which will not prejudice their CASC status full documentation should be retained including a copy of any contract and a minute of the approval of the arrangements by the appropriate committee.
7. Establishing a separate structure for development clubs
Clearly there may be clubs that have already registered as a CASC which in future may wish to pay player members thus potentially breaching the CASC rules. Equally there are other clubs which have considered the CASC rules in some detail and are deterred from registering because of the possibility they may breach the rules at some point in the future as a result of rewarding players.. It is however possible for a club to establish a separate club/company structure to run, say, the first XV and thus preserve CASC status. The paid player members will become members of a new ‘club’ which would operate independently of the existing CASC.
The CASC would continue to satisfy the requirements of CASC status i.e:
a) It would be open to the whole community.
b) It would be organised on an amateur basis.
c) It would have as its main purpose the provision of facilities for promotion of and
participation in rugby union.
It is very important for clubs to go about restructuring in the right way. The RFU would strongly advise against any attempt to use the CASC scheme to subsidise the professional game in any way. This would not be in the interests of the many amateur clubs which are already registered and might also lead to HMRC taking action which could affect all registered CASCs.It is envisaged that a successful structure under which the ‘amateur club’ could be CASC registered would involve segregation between the two clubs.
The particular structure would be up to the club. We would suggest professional legal advice is taken before making any changes. Care should be taken to ensure the two bodies actually operate independently. The use of subsidiary companies should be avoided in most cases. A CASC must be controlled by its members so it could not be a subsidiary of the non amateur club. There might also be problems where a CASC is the parent of the non amateur side as this relationship might lead to the club subsidising professional sport. However, this would need to be considered in the light of the particular facts and circumstances of each case and an early discussion with HMRC would be recommended.
The new structure would have the following characteristics:
· The clubs would have separate constitutions, bank accounts and rules.
· There would be a formal letting/leasing agreement for facilities owned by the CASC used by the ‘non amateur’ club with rent at no less than an arm’s length rate.
· Income and expenditure flows would be separate and accounted for by the two clubs on an independent basis.
· Whilst there may be common ’management’ a proper management agreement must be put in place between the two clubs.
· The ‘non amateur’ club members would not be members of the CASC.
· Each club would have to fund-raise for its own purposes although the surpluses in the ‘non amateur’ club could be used to assist the CASC but not vice versa.
· Each club would have its own general meetings to deal with the separate matters arising without interference from the other.
· The club property would remain in the CASC - any capital gain on it would be exempt from tax if the property continues to be used for qualifying purposes.
It would not be acceptable for a club to retain facilities such as a special pitch for the exclusive use by the first XV even where this is leased at arms length by the CASC to the professional club. Such arrangements would prevent the CASC from being open to the whole of the community because its facilities would not be available to its members without discrimination. It would however be acceptable for a CASC to allow the professional club to use their facilities when not needed by the members provided:
§ The facilities remain available to the members of the CASC and
§ There is a proper arms length agreement in place.
A further point is that the ‘non-amateur’ club and the CASC would not form a group for corporation tax purposes or value added tax purposes giving rise to potential disadvantages e.g. the lack of group relief for losses and VAT would need to be charged on taxable supplies between the two.
Clearly the establishment of separate structures under two clubs is less than ideal and in order to justify it administrative effort will be required. Whether this is worthwhile will depend on the facts and circumstances of each particular club which must make its own decision and take its own advice. There is a danger if structures along these lines are not implemented effectively that HMRC may regard this as an abuse of the CASC rules and introduce anti-avoidance legislation. This is what happened with the VAT exemptions for sports clubs in the mid 1990s.
Finally, there may well be issues in relation to clubs participating in competitions which issue segregation may effect. This is something that must be clarified in advance with RFU Governance so that implementation of these structures for CASC purposes does not prejudice the overriding object of participating in rugby union.
8. Action for community rugby clubs
Clubs should incorporate where appropriate and consider CASC status in the light of this new guidance. They should:
· Consider the ‘ordinary benefits’ rules for players and members and their impact on the club’s CASC status.
· Where appropriate get advice on a suitable structure which would satisfy CASC status and draft a proposal for consideration with the RFU.
· Approach RFU Governance to confirm satisfactory adherence to rugby rules and confirm the new structure would not prejudice funding e.g. the availability of grants and the registration of the club for appropriate competitions.
· Implement a satisfactory structure and ensure consistency between legal liability protection i.e. incorporation, CASC status, rugby rules and most importantly the wishes of club members.
Richard Baldwin
24 June 2008
APPENDIX 1 – ORDINARY BENEFITS
The ‘ordinary benefits’ of an amateur sports club are:
· Provision of sporting facilities.
· Reasonable provision and maintenance of club-owned sports equipment.
· Provision of suitably qualified coaches.
· Provision, or reimbursement of the costs, of coaching courses.
· Provision of insurance cover.
· Provision of medical treatment.
· Reimbursement of reasonable travel expenses incurred by players and officials travelling to away matches.
· Reasonable provision of post-match refreshments for players and match officials.
· Sale or supply of food or drink as a social adjunct to the sporting purposes of the club.
APPENDIX 2 – PAYMENTS TO PLAYERS/MEMBERS
3.9Payments to members (Including the awarding of prizes)
3.9.1 A club is allowed to:
· Enter into agreements with members for the supply to the club of goods or services, or
· Employ and pay remuneration to staff who are also members of the club provided the terms are approved by the governing body of the club without the member concerned being present and agreed with the member on an arm’s length basis.
3.9.2 So, a club would be able to pay members for services such as coaching or grounds maintenance as long as the conditions above were satisfied. We would not normally expect a CASC to pay members to play. However, some small payments to some members for playing may be acceptable as long as the object of paying players is to encourage wider participation in the sport. A club which pays players simply to achieve competitive success will not meet the qualifying criteria.
3.9.3 Example 1. A cricket club pays a member for his services as a groundsman. The rates of pay are reasonable and negotiated at arm’s length. This would be acceptable.
3.9.4 Example 2. An amateur football club pays two professional players to play in a league. In addition to their playing duties the two players have coaching and development roles with the club’s junior squads which are open to all, regardless of ability. Again, this would be acceptable.
3.9.5 Example 3. A rugby club fields three teams that play in league tournaments. The first team players are engaged on full-time professional playing contracts. While they are required to undertake a small number of promotional activities they do not have any coaching or junior development role. This would be unlikely to be accepted as a CASC.
APPENDIX 3 – HMRC QUESTIONS & ANSWERS
Can a club pay players?
If you have members who play, but are also paid in some other capacity, perhaps as a groundsman or a bar steward, then that is fine. Also some clubs, particularly some cricket clubs, might have a club professional. That is acceptable as long as the person is actually also performing some other role, such as coaching other members of the club or promoting the sport in schools or the wider community. What is not acceptable is to pay members simply to play. The scheme is about supporting clubs which provide facilities for, and encourage, sport in their communities, not clubs which are simply looking for success in competition.
