By Daniel Hunter
Many golf clubs are facing hefty corporation tax bills as HM Revenue & Customs turn the spotlight on how they calculate their tax liabilities, believes George Lovell, tax partner at DTE Business Advisers.
Private members’ golf clubs do not pay tax on income earned from their members under the mutual trading principle; however profits earned from non-members, such as visitors’ green fees, corporate golf days or function room hire, are taxable.
“The issue is how a club calculates the profits it has earned from trading with non-members,” explains George Lovell.
“There is a long standing practice that an apportionment of expenses is carried out to take account of the expenses that are attributable to providing facilities for the use of non-members. This includes the costs of staff, course maintenance and running the clubhouse. In most cases, golf clubs have legitimately been able to agree with HMRC a position that led to them paying very little, if any, corporation tax.”
The figures involved can be substantial: it is reported that The Berkshire Golf Club has received visitors’ green fees of £12.4 million since 1994.
“HMRC’s action may have been triggered in retaliation to the VAT refunds that many private members’ golf clubs have claimed in recent years, as HMRC seek to fight back and defend their tax revenues,” continues George Lovell.
“This issue should only affect private members’ clubs that are subject to tax as a mutual trading club. Proprietary clubs already pay corporation tax on all their profits, just like any other business, so will not be affected.
“If full disclosure has been made to HMRC, and ideally a formal agreement reached, then HMRC will not be able to revisit earlier years, although they will probably want to review the calculation used in future years.
“Perhaps a bigger concern is where proper calculations have not been done or no agreement obtained from HMRC. It may also be the case that income from non-members has been incorrectly recorded, for example as green fee income paid by members’ guests.”
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