Charitable Status of Leatherhead Youth Football Club

Leatherhead Youth FC was established as an unincorporated association club 20 years ago.  It operates from a single site in Leatherhead, Surrey which is leased to the Club by the Local Authority. Facilities include a pavilion with cafe and bar, onsite car parking and 8 grass football pitches, including 11 a side, 9 a side, 7 a side and 5 a side. The club also has a grass training area roughly the size of an 11 side football pitch.

The Club was keen to re-evaluate both its legal structure and tax status as it prepared to embark on a project to raise funds for the construction of new facilities. As an unincorporated association, the Club had no separate legal personality (which meant it could not contract, hold property or employ staff in its own name) and, if the Club ever suffered any liabilities which it could not satisfy out of its own assets, the Management Committee would be jointly and severally liable on an unlimited basis, which means their personal assets could be at risk.

The Club has also undertaken significant fundraising initiatives which have resulted in personal donations and other finance from generous benefactors; but without any special tax status, any such donations would not qualify for Gift Aid or tax relief.

It was therefore decided that the best option would be for the Club to change its tax status to a charity and its legal structure to a company limited by guarantee.

The benefits of charitable status include:

• Tax exemption for fundraising income;
• Non-domestic business mandatory rate relief on all property used to carry out the Club's objectives. Mandatory relief entitles the Club to an 80% reduction while discretionary relief of an additional 20% may be awarded by the Local Authority on a merits basis;
• Increased accessibility to and eligibility for grant funding from a range of grant organisations;
• Opportunities to generate income from support from commercial partners, including by either:
• commercial sponsorship; or
• corporate Gift Aid donation under the donor company's CSR (corporate social responsibility) policy; and
• Gift Aid for individual donations (which allows the Club to reclaim an extra 25p for every £1 donation, therefore the £1 is actually worth £1.25).

Changing the legal structure to a company would allow the Club to:

• operate in its own name as a separate legal entity, distinct from the Management Committee members; and
• limit the liability of the Club’s members.

Any proposed change to the Club's legal structure requires County FA consent so it's important to factor this in to your conversion timeline and apply in good time.

The Club also wishes to further develop its facilities by undertaking refurbishment works on the clubhouse and building a new outdoor floodlit artificial turf pitch. Both arrangements involve contractual commitments and therefore a corporate vehicle was appropriate to limit liability.

The Club engages in what is known as "non-primary purpose" trading (i.e. commercial in nature which is not intended to further the objects of the charitable Club). These activities include bar sales, catering supplies made to non-members and the public and retail (buying goods in for the purpose of resale with a view to profit). It was therefore necessary to establish a wholly-owned trading subsidiary company in order to:

• ensure the Club separates its charitable activities from its commercial activities. In practice, the Club will only further charitable work in furtherance of its objects while the trading company will carry on commercial activities to generate income for the Club. Otherwise the management committee could be acting ultra vires (i.e. outside the scope of) their conferred authority as set out in the Club's articles of association;
• ensure that the profits generated from trading activities are able to be retained tax efficiently by the Club;
• ensure the Club does not breach the non-primary purpose trading turnover limits permitted by HMRC (currently 25% of turnover where the Club's total income is £2000,000 or less, but subject to a maximum cap  of £50,000) otherwise such income becomes taxable;  and
• ring-fence the Club's assets from risk since the trading company trades independently.

Chair of Trustees, Dennis Crema, said, "Incorporating the Club and achieving charitable status was a natural step for us to take in order to give the Club the best opportunity to improve both facilities and the players' football experience. We recognised that, as volunteers, we all have other commitments and a limited time to spend on Club matters, so this restructure was intended to allow us all to work smarter going forward, taking full advantage of the tax reliefs, Gift Aid and rate relief available to registered charities. The conversion process was relatively straightforward with professional legal support via The FA and we now have the perfect platform through which to expand and improve the Club's activities."

For more information on this case study please contact Leatherhead Youth FC on 01372 362 725.