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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Meaning of trade: Mutual trading and members clubs: members' clubs: introduction

A club, established by its members for their own social or recreational objects, is unlikely to be liable to tax on any surplus which arises from transactions with its full members. This is because the surplus from such transactions does not arise from the carrying on of a trade. The club, in its dealings with its members, lacks the necessary element of commerciality. It is important to recognise that the reason that there is no tax liability is because the entity is not trading; and not because the transactions are mutual. There is guidance on what constitutes a trade at BIM24045.

If the subscriptions exceed the expenditure in any year, the surplus is just that, a surplus and not a trading profit. Because they are not trading the question of mutual trading does not arise, even in connection with such matters as meals and bar sales. The members are not buying and selling food and alcohol; they own it jointly and are consuming their own property.

However, where the club provides services, on a commercial basis, to outsiders (such as visitors or temporary members) then any surplus made from such transactions is liable to tax as trading income. The issue then is how to allocate the club’s income and expenses between the trade carried on with non-members and the provision of non-taxable services to members. Similarly, where the club provides food or drink to non-members for a charge that too may amount to a trade and that is not a mutual trade.

Other income (for example savings and investment income) and gains of members’ clubs are chargeable to tax in the normal way. Also, if the members’ club pays interest on loans from brewery companies, or other suppliers, it may need to account for tax under S945-960 Income Tax Act 2007. You should bear these points in mind when considering the liability of members’ clubs.