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HMRC internal manual

Business Income Manual

Meaning of trade: mutual trading and members clubs: members’ clubs: temporary membership

Often visitors to members’ clubs are described as, or become, ‘temporary members’. However, this does not alter the commercial nature of their transactions with the club, unless their rights as ‘temporary members’ are similar to those of full members. The relevant rights to consider might, for example, include:

  • being able to participate fully in the clubs’ activities
  • vote at meetings and generally exercise control over the running of the club, and
  • share in any distributions on a winding up.

Similarly, receipts from ‘associate members’ for the use of the club’s facilities will also be trading income, unless they can also show that their rights are equivalent to full members.

The position of associate members was considered by the Special Commissioners (the predecessors to the Tribunal) in the case of Westbourne Supporters of Glentoran v Brennan (SPC22). The case involved an unincorporated club, which had two classes of member, ordinary, and associate, both of which paid the same entrance fees and membership subscription. However, only the ordinary members had voting rights.

In finding that the clubs activities with its associate members did not give rise to a taxable profit, the Special Commissioner found that the associate members, who significantly numbered about 70% of all members, exercised informal control over the management of the club. Further, their entitlement to participate in any surplus on dissolution was protected by general law relating to unincorporated associations and clubs. The distinction between the ordinary and associate members originated in the Registration of Clubs Act (Northern Ireland), whose prime object was to ensure the proper conduct of clubs supplying alcoholic beverages. Since associate members’ rights were basically the same as ordinary members, the economic substance of their transactions with the club were also the same. It was accepted that ordinary members’ transactions with the club did not constitute ‘trading’ and it therefore followed that associate members’ transactions were also not on a commercial basis.

Apart from the fact that this decision is not a legally binding precedent, it should prove possible to distinguish the case on the basis of its particular facts. The decision is of relevance only to unincorporated associations. Incorporated concerns are legal persons separate from their members and different considerations apply - see BIM24240 onwards.

For the text of an article originally published in TB12 discussing this issue see BIM24230.