This is my first post, so I hope it's in the right place.
I have a very long standing client - a club/society - whose balance sheet consists solely of assets, liabilities and reserves (no fixed assets). They purchased some property back in 1997 and for some reason this was shown as "Investment" under assets. My files for this year are no longer accessible but there must have been good reason at the time, not to express this as a Fixed Asset. They are now applying for a grant and feel the term investments will not further their aim and wonder if the investment can be transferred and shown as an asset.
At present I can't see why this shouldn't happen, although the comparatives on previous years will continue to show the property as so investment. I am unwilling to adjust the current year's accounts without stating "AMENDMENT" very clearly.
As the club is not incorporated, it does not make tax returns and any interest received in paid net. Would the inclusion of an asset in the accounts have any taxable bearing?
It may well be that you are not liable for corporation tax if you have less than £30k turnover but you should note that your reasoning for not paying tax is flawed in that even though not incorporated you are still liable for corporation tax as a club or society.
Here's a handy link that I think that you may need to read :
I don't deal with charities, social or sports clubs so the following response is in relation to if this was a real business. The principles will be similar but there may be differences in the detail which I'm sure that others who handle such clients will be able to fill out.
It would seem that the asset has been misclassified. My guess is was this mistakenly taken to P&L in year of acquisition similar to inventory in order to expense rather than depreciating (rebutable presumption) over its useful economic life?
That would have been an incorrect classification of an investment and mean profit and non current assets were understated in the year of acquisition and retained profit / loss will remain overstated by the cost of the asset but understated by non inclusion of accumulated depreciation.
For moving an element from current to non current assets would be a change of accounting policy rather than estimate due to the original presentation being incorrect, and you would need to also restate the comparatives as though the asset had always been non current.
On the asset front, what classification is it? Does it depreciate? amortise? Would a club or society have been permitted to spend money on it if such is not wholly and exclusively for the benefit of members. To me it seems that using member funds for investments would not be classified as a qualifying use of funds but I don't deal with charities and sport clubs so I'll leave it to others to fill in more details on that.
Really I'm just pulling idea's out of the air here as we need more detail on what the asset actually is. We really need a bit more information on the asset and how it has been used since acquisition in order to give any further detail. For example, is the investment for the club a physical or financial asset? When does it / did it crystalise?
Do you have any practicing accountants who are members of your club or freinds of members of the club who could help you with clarifying the tax situation of the club and restating the asset.
kind regards,
Shaun.
p.s. for reference over change of accounting policies / estimates refer to IAS8 or FRS18 under UKGAAP
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Oh Shaun, stop your scare mongering!! Most social clubs are exempt from corporation tax on grounds of 'mutual trading'...too many books, not enough time in the field!
Oh Shaun, stop your scare mongering!! Most social clubs are exempt from corporation tax on grounds of 'mutual trading'...too many books, not enough time in the field!
Hi Rob,
lol, its back to the difference between your there or there abouts and my legislation to the letter isn't it.
my opening did state that if the turnover is less than £30k then there should be nothing to worry about.
I have no interest in clubs and charities so put the proviso in the reply that my response was based on a traditional business and that others would fill in the gaps.
That aside though, does not making investments circumvent the idea of mutual trading as such introduces a profit motive? Even if the rest of the enterprise is tax exempt profit on investments would surely be taxable.
Charities and sports clubs are obviously more an area that you have a handle on so I'll bow out of this thread and leave it to your good self.
And with that I'm off back to the sanctuary of my books for the rest of the evening.
All yours,
kind regards,
Shaun.
p.s. my business was established in 1990 so come february next year it will be 24 years in the field, just mostly in the finance functions of major blue chips including several of the banks, so not an expert at all in this sort of non profit type enterprise.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Good retort Shaun...but I'm sure we filed the old 'TOTA' under pragmatism! You're right that activities outside the normal trading would probably be taxed. Just pulling your leg about the books!
Most social clubs are exempt from corporation tax on grounds of 'mutual trading'...too many books, not enough time in the field!
