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HMRC internal manual

Company Taxation Manual

Particular bodies: sports testimonial or benefit committees

Status of a sports testimonial or benefit committee and its liability to tax

A committee of people may be established to organise a testimonial period or benefit for a sportsman or sportswoman. The aim of the committee (‘testimonial committee’) will usually be to raise funds for the sportsman being honoured and in some cases for his nominated charities. Money is usually raised from members of the public through fund-raising events organised by the testimonial committee. At the end of the testimonial period, the committee will make payments from the net funds it holds to the beneficiary or beneficiaries.

A typical testimonial committee may be formed with a chairman, a treasurer, a secretary and other members invited to join the committee. Some committee members may be chosen for their expertise or business experience in respect of the activities and events which will be staged as part of the testimonial period. The testimonial committee may have trading or business objects and may carry on commercial activities. Members of a sportsman’s testimonial committee would not normally expect to be remunerated for their services.

The status of a testimonial committee and its members will determine the taxation of any profits arising. The status of a testimonial committee is mainly a question of fact. In many cases a testimonial committee will constitute an unincorporated association. An unincorporated association falls within the definition of a company in CTA10/S1123 (1) which, subject to some minor qualifications means

any body corporate or unincorporated association but does not include a partnership, a local authority or a local authority association.

A testimonial committee which is an unincorporated association will therefore be a company and its taxable profits it will be chargeable to corporation tax.

The term ‘unincorporated association’ is not defined in the Taxes Acts and its characteristics have emerged primarily from case law. There is more detail at CTM41300 onwards but the essential features of an unincorporated association were summed up by Lawton LJ in the Appeal Court in the case Conservative and Unionist Central Office v Burrell (1981) 55 TC 671. He said at page 699:

I infer that by “unincorporated association” in this context Parliament meant two or more persons bound together for one or more common purposes, not being business purposes, by mutual undertakings, each having mutual duties and obligations, in an organisation which has rules which identify in whom control of it and its funds rests and upon what terms and which can be joined or left at will. The bond of union between the members of an unincorporated association has to be contractual.

The rules of a testimonial committee which identify who controls it and its funds and on what terms may well impose enforceable obligations on the members, particularly in relation to dealing with the funds. For example, a testimonial committee will need to operate a bank account and there will be rules governing who may sign on behalf of the committee and who may deal with funds held in the account.

Mutually enforceable obligations may arise whether or not the rules of a committee are recorded in writing. The rules may have been agreed orally or they and the obligations imposed by them may be inferred from the manner in which the testimonial committee operates.

Mutual obligations between members of a testimonial committee are likely to arise in the course of planning and organising fund-raising events for the ultimate benefit of the sportsman being honoured. Some examples follow. Their existence would point towards a testimonial committee being an unincorporated association.

  • The testimonial committee appoints an individual member or a group of members to assume responsibility for carrying out a particular event or activity. That member or group of members incurs obligations to the committee as a whole to account for the funds raised.
  • Expenses are incurred in the carrying out of a particular event or activity. The individual member or group of members responsible for the event or activity is under an obligation to the committee as a whole to ensure expenses claimed by members of the committee or paid to third parties have been legitimately incurred, and all members of the committee are under an obligation to ensure the responsible member or group are themselves reimbursed.
  • The individual member or group of members responsible for an event is under an obligation to ensure that the members are insured against liability to third persons in respect of a particular event and all the members of the committee are under an obligation to ensure the conditions imposed by the insurer are met.
  • An individual member or group may be responsible for the production or purchase of promotional and advertising material, admission tickets and memorabilia and other merchandise to be marketed for the benefit of the sportsman being honoured. There will usually be references in the material, tickets and other merchandise to the testimonial committee as organizer. The responsible individual or group will be under obligations to the committee as a whole in respect of, for example, the content of the advertising and promotional material. All the members of the committee have obligations in respect of claims against the member or group of members who have acted in good faith in producing or purchasing that material.

Where such mutual obligations exist, the testimonial committee would be an unincorporated association and would thus fall within the definition of a company. As such it is liable to corporation tax on its taxable profits and is required to make a CTSA return and pay the CT due. Guidance on the profits chargeable to CT may be found in CTM01110 and in BIM66000 onwards.

The testimonial committee’s CTSA return should be submitted by the committee’s proper officer or by a person having the express, implied or apparent authority to act on behalf of the testimonial committee (TMA70\S108 (1)). ‘Proper officer’ is defined for the purposes of an unincorporated association in TMA70/S108 (3)(b) as the treasurer or the person acting as treasurer.

Where a testimonial committee fails to pay the CT due, TMA70\S108 (2) provides that the CT chargeable on it as an unincorporated association (that is, a company which is not a body corporate) may be recovered from the proper officer. It further provides that the proper officer may retain out of the association’s funds sufficient sums to pay the tax and is entitled to be indemnified by the association in respect of any liability for which he has not been reimbursed in that way.

The members of a testimonial committee should ensure that the balance of funds ultimately available to be paid over to the beneficiary or beneficiaries during or at the end of the testimonial period takes account of the CT, VAT and other tax liabilities of the testimonial committee arising as a consequence of its activities.

The beneficiary of the testimonial year would not usually be a member of the testimonial committee organising the testimonial. In those circumstances payments made to the beneficiary out of funds raised by the testimonial committee would not constitute distributions falling within CTA10/PART23.