Annex 1: Minor changes in the law Change 48: Receipt of club benefits by members: arm’s length agreements for employment or for goods or services: section 660
This change removes certain formalities which apply where a club member supplies goods or services to the club or is employed by the club and the club wishes to satisfy the requirements for tax exemptions.
In order to qualify as an amateur sports club paragraph 3(1) of Schedule 18 to FA 2002 requires that only the ordinary benefits of a community amateur sports club can be provided to members and guests. Those benefits are set out in paragraph 3(3) of Schedule 18. A club’s powers are thus restricted to the actions which allow them to provide those benefits to their members. Paragraph 3(4) of Schedule 18 however makes provision for clubs to enter into agreements to pay for goods or services or to pay remuneration to a member and to continue to satisfy the requirements for exemption. The main rule is that where there are such agreements with members then they must be at arm’s length.
Paragraph 3(4) also imposes the condition that the terms of such agreements with the member should be approved by the club’s governing body without the member concerned being present. In practice HMRC do not enforce this rule, being only concerned that the agreement is at arm’s length. This change omits these formalities in the rewritten section. This means that the only requirement is that the agreement should be at arm’s length. This does not, of course, exclude the necessity for evidence demonstrating that the agreement is at arm’s length.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.