Sport: Regulatory Issues: (1) Effect on Sport of the Strategy Unit Report on Charities and the Voluntary Sector; (2) Community Amateur Sports Clubs (CASCS)

The Government’s Strategy Unit Report on charities and the "not-for-profit" sector was published on 25 September 2002. The recommendations are being consulted upon until 31 December 2002. Once the consultation period is over, the responses will be considered by the Active Community Unit and it will be decided which of the Report’s recommendations are taken forward to implementation.

Separately, the Strategy Unit is carrying out a Sports Policy Review. This is expected to make recommendations in relation to grassroots sport, high-performance sport, major sporting events and the delivery organisations. This Report has yet to be published.

Two of the Strategy Unit’s recommendations have a major impact on the regulation of sport. The first is the recognition that the advancement of amateur sport should become a charitable purpose. The second is the recognition of a need for community interest companies.

The Report recognises that "amateur sport" itself should be recognised as a charitable purpose rather than being a means to providing a different charitable purpose. This goes further than the Charity Commission’s recent pronouncement that "community participation in healthy recreation by the provision of facilities" is charitable. Two other recommendations, relating to the reform of charity law, are significant in this context, namely that:

• so-called "Small Charities" with an income of less than £10,000 per annum will not have to register with the Charity Commission (although a lighter supervision will apply) but can benefit from the advantages of charitable status;
• charities will not have to establish trading companies to run social or other trading activities for the purpose of raising funds.

For sports clubs, these proposed changes are welcome. "Amateur sport" (which is to be defined using the definition of sport used for CASCs ie based on recognition of the sport by the Sports Councils) will be charitable in its own right and charitable status affords those clubs which are considering CASC status (see below) an alternative offering better tax breaks.

Many sports governing bodies have related charities that currently deal with the advancement of youth sport. In most cases it should be possible for those existing charities to re-organise themselves so as to include the advancement of "amateur sport", use existing administrative networks to raise and use funds for this area and benefit from the tax reliefs afforded to charities. These sports charities are likely to have incomes in excess of £10,000 per annum and would therefore need to be registered. Many sports charities are constituted as trusts. If their activities increase as a result of the new purpose, consideration will need to be given as to whether they re-organise themselves in the form of the proposed "charitable incorporated organisations" ("CIOs"). CIOs are the proposed limited liability corporate vehicle designed specifically for charities.

One area for thought is whether the term "amateur sport" really encapsulates what is meant to be charitable. Many sports clubs operating at a "grassroots" level may consider the word "amateur" carries with it rather old-fashioned overtones and ideals. It is important that whatever terminology is used it is clearly defined so that those involved with sport know which elements of the sports industry are charitable and which are not.

The sports governing bodies have typically started life as unincorporated associations and changed legal status (to gain the protection afforded by limited liability) to companies limited by guarantee (or shares) and, occasionally, to industrial and provident societies.

Sports governing bodies are not identified specifically in the Strategy Unit’s Report as "social enterprises" but it is clear that they are not intended to make a profit other than for the sport into which any profits are ploughed back. The proposed Community Interest Company may be the natural evolution for sports bodies since the assets would be protected for the sport, which would give the Sports Councils and other funders reassurance that money given to the sport would be ring-fenced for its benefit. The proposal that such a company would also be able to grant preference shares to funders could lead to imaginative ways for funds to be raised for sport.

Some time before the Strategy Unit disclosed its proposals for wide-reaching change in the voluntary sector, many sports clubs campaigned for "parity with charity" in terms of tax relief. The Finance Act 2002 defines CASCs and sets out the conditions for their favourable tax treatment.

As CASCs must operate for the benefit of the community, many sports clubs will need to change their ethos and constitution from being established for their members to being established for the community. Indeed, CASC status will not be appropriate for every sports club and only sports recognised by UK Sport can become CASCs.

The table headed "clubs" on the back of this paper sets out in general terms an analysis of the different tax treatment of a sports club, a CASC and a charity for different types of revenue and activities so that you can compare the advantages of each.

However, if a sports club is currently fund-raising for a new clubhouse or ground, then CASC status could be advantageous as there are various tax incentives offered to supporters of CASCs (see the table headed "supporters" overleaf). Essentially, the club can benefit from the basic rate tax reclaim (currently 28p to every £1 given) and, where the gift is not cash, the supporter will not have to pay capital gains tax on its disposal.

Before jumping on the band-wagon to change status, sports clubs should analyse whether the costs of changing status (which could involve constitutional changes to fit within the definition of a CASC) are worth it. The Sports Unit at the Inland Revenue has indicated that becoming a CASC will not prejudice a club’s ability to claim any reliefs to which it is currently entitled, and therefore in deciding to become a CASC, a club will need to decide whether it will get any additional benefits. Many clubs currently gain from mutual trading status and, even if they do not, if their profit is no more than £10,000 it will be taxed at the 0% corporation tax start rate anyway. If a club falls within these categories, it will only be worth becoming a CASC if it is fund-raising significantly and, even then, as the CASC reliefs are not as favourable as those available to charities it may be worth considering charitable status instead.

Although sports clubs have welcomed the introduction of CASC status, the proposals of the Strategy Unit are of even more interest, as the tax reliefs for CASCs are more limited than for charities.

Once the consultation has been completed, the responsibility for proposals being taken forward will be divided between different government departments (although the bulk of the responsibility will remain with the Home Office). The speed with which legislation is enacted to put the recommendations in place will depend on the relevant department’s legislative agenda. However, early indications are that a draft bill might be put to Parliament as early as Autumn 2003 and, therefore, that these recommendations could become law within the next two to three years.

As a sports club would have to change its constitution to become a CASC or a charity, there is a strong argument that for most clubs it is worth waiting for amateur sport to be charitable in its own right to obtain in one step the extra benefits that come with that status (and saving themselves the constitutional changes to obtain CASC or charitable status in the meantime).

The Report is currently being consulted upon. We urge sports clubs to respond if only to welcome the proposed changes and to make the Government aware of the strength of support for the proposals. The Report can be obtained from www.cabinet-office.gov.uk/innovation/2002/charity/report. Responses need to be sent to piuvolsect@cabinet-office.x.gsi.gov.uk by 31 December 2002.

Supporters (individuals and companies)