The abiding memory of 2012 for many in the UK will be the rousing success of the London 2012 Olympics and Paralympics both in terms of hosting the events and of Team GB’s medal haul. Many are looking to what longer term impact the games may have around the country. The plans for a lasting Olympic legacy played a key part in helping London win its bid to host the Olympics and the Games’ official motto was ‘Inspire a generation’. The intention was that the Games should catalyse greater sports inclusivity across the nation; if that helps discover the next Mo Farah or Ellie Simmonds, all the better.
One of the core policies is a new sporting initiative, which aims to increase sport participation rates (which have been falling in recent years). There is to be a greater focus on attracting young people into sport at school and maintaining their habitual involvement in sport into adulthood. More than £1 billion of government and National Lottery funding (sport will now benefit from 20% of Lottery funds) is due to be invested in youth sport between 2012 and 2017 by Sport England. The aim is to encourage involvement at grassroots community level. It is anticipated that over 6,000 new community sports clubs will be established as part of the Olympic legacy.
Development of amateur sport as a charitable purpose
The Department for Culture, Media and Sport is responsible for implementing the Olympic legacy. Its policy ‘blueprint’ is ambitious in scope and provides a broad range of opportunity for the involvement of charities and individual philanthropists in achieving its aims.
For those inspired by the Olympics and in a position to help, it is at that local community level that the philanthropically minded are likely to have most influence, whether volunteering towards the establishment and management of clubs or contributing additional funds to those available from official sources. Provided clubs can show that they are managed in accordance with prescribed regulations, tax advantages are available both to the clubs and those who fund them.
Historically, tax relief was not available to sports clubs. The common law position was that the promotion or encouragement of ‘mere sport’, where the enjoyment of taking part took priority over any incidental health benefits, would not be considered charitable, unless the sport in question was ancillary to other charitable purposes (eg the donation of funds to provide sports equipment at schools). More generally, the provision of sporting and recreational facilities was considered charitable under the Recreational Charities Act 1958.
The position shifted in the early 2000s when the Finance Act 2002 introduced the concept of ‘Community Amateur Sports Clubs’ (CASCs). A range of tax reliefs is now available to CASCs established for certain sports (as defined by Sport England), provided they register as such with HMRC.
The CASC regime was followed by the Charity Commission’s recognition of the promotion of community participation in healthy recreation by providing facilities for playing particular sports (in this context ‘facilities’ included the organising of sporting activity as well as access to amenities) as being charitable, and therefore also capable of benefiting from the usual charity tax breaks. The Commission issued guidance in 2003, which was also stated to be aimed at CASCs.
Subsequently, the Charities Act 2006 recognised that purposes for the ‘advancement of amateur sport’ are capable of registration as a charity, provided those purposes are also for the public benefit. The Charity Commission undertook a consultation in 2011 on what is understood by the advancement of amateur sport, but updated guidance is yet to be published. One development which has been recognised following the 2006 Act is that the promotion of amateur games with a sufficient degree of mental skill and exertion (as distinct from the physical) may also be considered amateur sport for the purposes of charitable registration (eg chess and bridge clubs have been registered). For the moment however, the 2003 guidance remains current.
Sports clubs are therefore catered for by two sets of legislation (CASC and charity). A single club may only be registered under one regime, not both.
Donors’ due diligence
If a club is not registered with HMRC as a CASC, but has exclusively charitable objects and an income of more than £5,000 per year (the threshold for registration), the club will need to register with the Charity Commission and apply to HMRC for recognition as a charity if it wishes to ensure that donations to it attract tax relief both for the club and donors. In practice, it is likely that there are many local clubs which have not registered either with the Commission or with HMRC.
The Olympic legacy initiative is likely to bring more unregistered clubs under scrutiny, so for individuals contributing funds to establish a local club, it will be useful to take professional advice to ascertain the best structure for the organisation.
Those wishing to give money towards existing local sporting projects would also be advised to undertake due diligence on the enterprises to which they wish to give. If the club in question is not registered as a CASC or charity with HMRC, the club will not qualify for tax relief either for the club or for the donor. HMRC maintain a searchable online register of CASCs. For registered charities, the Charity Commission Register is searchable online and has links to charities’ accounts so donors should be able to get a general feel for the viability of the clubs in just a few clicks. CASC accounts are not publicised, although if the CASC is a company, its financial details can be secured through Companies House or search agents for a small fee.
Donors ought also to determine the constitution of the club to which they wish to give. Smaller clubs are likely to be unincorporated associations (ie small membership organisations bound by a set of less formal rules or regulations agreed between the members) which can attract a greater degree of risk for those involved due to the unlimited liability that can attach to its trustees and members.
The CIO (charitable incorporated organisation), a corporate form designed solely for charities, is now available for such organisations, with the first CIOs having been registered at the Charity Commission in January 2013.
Availability of tax relief
A CASC registered with HMRC attracts fewer tax benefits than a registered charity.
CASC exemptions include exemptions from tax on:
- trading profits, if turnover is less than £30,000 (income deriving from members, such as subscriptions, is not treated as trading income). NB: if the threshold is exceeded then all profits are taxable, not just the excess;
- income deriving from letting property, provided the gross income is less than £20,000;
- interest received; and
- capital gains.
Donors to CASCs may benefit as follows:
- UK taxpayers (but not companies) can make gifts using the Gift Aid scheme (the CASC can claim back the basic rate of tax and the donors can claim back higher rate relief, subject to having paid sufficient income tax or capital gains tax in the year);
- businesses providing goods or equipment that CASCs make, sell or use can claim relief for their gifts; and
- gifts of chargeable assets to CASCs by individuals or companies are free from capital gains tax.
Charity exemptions include (provided income is applied for the charity’s purposes):
- all ‘primary purpose’ (ie directly related to the charity’s objects) trading income is tax exempt;
- non-primary purpose trading is exempt within certain limitations, depending on the size of the charity, up to a maximum value of £50,000 turnover;
- any income deriving from one-off fundraising events or raised via a wholly owned trading subsidiary and gift aided to the charity is exempt from direct tax;
- income deriving from interest made on a charity’s investments and capital gains made on the disposal of a charity’s assets are exempt provided the income and/or gains are applied for the charity’s purposes;
- income and corporation tax relief is available for donors on gifts of qualifying shares and property (this is not available to CASCs);
- charities are exempt from paying stamp duty land tax where the land in question is held for charitable purposes and the relevant transaction is not made for the purpose of avoiding tax;
- there are various VAT reliefs available to charities (normal VAT rules tend to apply to CASCs, although exemptions are available for member subscriptions).
In addition, donors to charities benefit from all the incentives to give as are available to donors to CASCs. Corporate donors to charities can also benefit from corporate Gift Aid.
Both CASCs and registered charities can obtain a mandatory 80% non-domestic rates relief on premises they occupy, provided it is used wholly or mainly for the purposes of the club, and they are able to apply for discretionary relief in respect of the remaining 20%.
Donors tend to be as interested in how much tax relief will be available to the causes to which they wish to donate as they are in the relief they can claim personally. The more generous philanthropists may therefore prefer to give to charities rather than CASCs.
Word of warning
A final point to note for new clubs most directly inspired by the Olympics, is that they should be wary of adopting names or logos which are the same or similar to those of London 2012 or the Olympics movement generally. Whilst not-for-profit events inspired by Olympic principles are encouraged, unauthorised commercial exploitation of Olympic branding is strictly controlled.