Charitable status for Sports Clubs
Being a charity is a legal status for an organisation, not a type of legal entity or organisational structure. Its benefits for clubs can include increased access to funding opportunities, tax exemptions, the ability to maximise the benefit of donations through reclaiming tax under gift aid, and an enhanced image for the work it is doing within wider society.
In an age of increasing obesity, social and mental health issues their place in society has never been more important. However despite the widely acknowledged role that sports clubs play in our society in promoting social and community inclusiveness and improving health through regular exercise, many clubs are under threat through a combination of lack of funding and inadequate facilities.
Before April 2006, the vast majority of sports clubs were not eligible to apply for charitable status. This meant valuable tax concessions designed to both encourage donations and benefit from tax reliefs were not available.
The Charities and Trustee Investment (Scotland) Act 2005 introduced a new regime for the regulation of charities in Scotland. One of the key effects of this reform of charity law is that sports clubs are, from April 2006, eligible to apply for charitable status (assuming they satisfy all other criteria).
At the same time, the designation Community Amateur Sports Club, or CASC, was introduced as a way of bringing some of the benefits of being registered as a charity to sports clubs not eligible for charitable status. So Amateur sports clubs are now able to take advantage of valuable tax reliefs by registering either:
- As a Charity – with the Office of the Scottish Charity Regulator (OSCR); or
- As a CASC with HM Revenue & Customs (HMRC).
Gaining charitable status
An organisation can only become a charity if it meets the ‘charity test’, meaning that it must show it has only charitable purposes and benefits the public. In order to gain charitable status, a club would need to meet two criteria:
The purposes of the club must be exclusively charitable. They cannot have a mix of charitable and non-charitable purposes (though a non-charitable subsidiary or other linked legal entity can be used for noncharitable activities, meaning that the main legal entity can access charitable status). It should be noted that a club which is involved solely in elite sport will not be eligible for charitable status.
The club must be set up for public benefit (rather than for an individual or small select group of people; and access to benefits must not be “unduly restrictive” – one particular issue being high charges if these are considered to be too much of a barrier).
In order to be eligible for charitable status, the legal entity must be non-profit distributing – that would exclude a club owned by a small group of shareholders. There is scope, however, for a community benefit society issuing community shares to be recognised as a charity – though that is a new development in Scotland and there are few examples to date.
Charitable status brings with it the need to comply with charity law – and those serving on the board have certain legal duties as charity trustees. The requirements are not, however, particularly onerous; and the charity trustee duties are broadly in line with what would generally be regarded as common-sense principles supporting good governance. Clubs registered as charities are unable to pay players, unless for coaching as part of a wider community setup.
Advantages of Charitable Status
The main advantages associated with registration as a charity are as follows:
Tax Advantages & Rates Relief
Properly structured, a charity can avoid any liability to tax on profits and benefit from Gift Aid.
People may view your organisation differently as a charity.
Charities often enjoy considerable support from funders and other potential supporters which might not be available to other legal structures.
Drawbacks of charitable status
Registering as a charity or a CASC is a decision that should not be taken lightly. Sports clubs come in all shapes and sizes and they must decide for themselves whether registration, which provides corporation tax exemption, business rate relief and the ability to maximise donations through Gift Aid, is worthwhile. For some clubs, registering may not be the only, or the best option.
Some of the disadvantages of charitable status include:
- Administration. Regulation by OSCR can involve an additional administrative burden and increased compliance.
- If you lose your charitable status you might also lose your legal status/personality (depending upon the legal structure adopted).
- Charitable status might restrict your activities if these might not be consistent with its charitable purpose.
To date, we’ve supported the incorporation of over 58 sports organisations across Scotland. This includes semi-professional football clubs such as Annan Athletic (as a Community Benefit Society), New Elgin Juniors (as a Company Limited by Guarantee) and Dunbar United (as a Community Interest Company) and multiple amateur grassroots clubs of all sports and sizes (as Scottish Charitable Incorporated Organisations).
Our support includes assistance selecting the right legal structure for your club, drafting a suitable constitution for that legal structure, application to the regulator and transferring assets to the new entity. We have club-specific rules/constitutions pre-approved by regulators which can make the process more manageable, not to mention huge experience in the field. We can often clubs with the entire process for as little as £1000 (although a final sum will depend on any complexities/specific requests your club might have – e.g. if you're creating subsidiaries).