A not for profit martial arts club with no VAT or tax, -80% business rates, limited liability, gift aid and grants

Introduction

This article will document how running your martial arts club as a not for profit organisation can deliver some or all of the following benefits: no VAT, no tax, 80-100% reduction in business rates, limited liability, gift aid and access to funding / grants. These benefits are derived from different government schemes and each has specific conditions. The article has been compiled from information already available on the internet. I am not a qualified accountant or solicitor. Please run any changes past your accountant before implementing them.

History of my own martial arts clubs

When i originally started teaching martial arts full time (2008) i operated as a sole trader. A year after we taking on our first full time venue (2009) we formed a private limited company. This was to at least give me some protection against unforeseen circumstances. In 2014 we opened a second venue. It is at this point we decided it was the ideal time to reconfigure the businesses. I did some research and eventually settled on running the clubs as seperate not for profit Community Interest Companies. 

I have always provided services to a number of different clubs and organisations. For this reason i have my own separate private limited company. It is my own company tha ti am employed by. This leaves the martial arts clubs free to focus on managing the facilities, members and staff. The clubs then contract my company to provide the programmes, systems, training and marketing to operate the centres efficiently. Each venue has its own manager and i volunteer as director at each club. The blueprint i use today was put together with my knowledge of sports club structures with a little inspiration from outside the martial arts community.

Setting up as a not for profit martial arts club

To access the schemes i am about to outline, you will need to be a non for profit club. You have a few different types of ‘not for profit’ entities to choose from. My choice is a Community Interest Company limited by guarantee. A CIC limited liability social enterprise owned by the club members. While this can be a little scary and i have heard horror stories of vigilante parents trying to take over clubs, this has not been my experience. In fact, i would say that it has been harder to get members involved in becoming company officers. In two cases i had a director come on board for less that six months. 

Our venues are registered as individual CICs and have between 3 and 4 non related directors. When you start, these maybe long term members or parents of the club. It goes without saying that these should be people you trust. As you get more experienced it will make your life easier if you start to look for people that help you build a board with a wide skill base. If you are employed by your club you have the same protection as any other employee. If you are contracted to your club, you have the protection of the contract signed by the club. There are also other ways of protecting yourself but if you do a great job for your club, you should never be in a position where your goals and efforts are not aligned.

Limited by shares or guarantee?

You can gain some of the benefits documented at the beginning of this article with a Community Interest Company limited by shares. The problem with this format is that it rules you out of being able to register the club as a CASC. If you want your club to have the option to register as a CASC further down the line, it is much easier to setup the CIC up with memorandum and articles of association (Mem & Arts) that meet the requirements to start with.

Robin from Ordered Management  set both of my CIC’s up and it cost around £175. After filling in a short form he handled everything required to register your new club with Companies House. Before you do this, it’s a good idea to select 3 directors. If you want to go for any grants or funding, they will require that the three directors. These must be not related or living at the same house.

VAT and martial arts clubs

If you google ‘VAT Sport’ you will come across VAT notice 701/45. A martial arts club exempt from VAT means that these coaching services do not count towards the VAT threshold. If you also supply other goods and services from your club, you will still have to register for VAT if the total of these ‘other’ goods and services exceeds the current VAT threshold.

Eligibility

The following text describes when sporting and physical education services are exempt from VAT. This does not mean that your whole club is exempt from VAT but the income that qualifies.

1. You engaged in activities that qualify for exemption. In terms of martial arts this includes Aikido, Chinese Martial Arts, Fencing, Jiu Jitsu, Judo, Karate, Kendo, Sombo Wrestling, Taekwondo, Tang Soo Do and Wrestling. 
2. You supply services that are closely linked with and essential to your sport. This includes playing, competing, refereeing, umpiring, judging, coaching or training.
3. You provide your services to an individual, family or informal group. Basically your customers have to be the ones taking part in the sport.
4. Your club meets the eligible body criteria. This means the club has to operate as a not for profit and reinvest any profit back into the club. This does not mean you can’t pay yourself or your staff. It just means that once everyone has been paid, you invest the surplus in to improving your club. This is also covered by the ’non distribution’ or ‘asset lock’ clause you will have in your CIC memorandum and articles of association (Mem & Arts).
5. The ‘commercial influence’ aspect is a little more complex. Your club is considered under commercial influence if within in the last 3 years an officer in your club has supplied:-
   1. a service to manage or administrate the facilities
   2. any goods or services for above market value prices
   3. any service where they have been paid an amount based on the clubs turnover or profit

Quick summary of 701/45 in the context of martial arts clubs

You should meet most of the requirements for VAT notice 701/45 if you are delivering services to individuals based on one of the recognised martial arts where surplus funds are reinvested in your club. . If you are employed as the Head Coach at your club and are paid a fixed fee that is not inflated above normal marketing value, you may also meet the requirements necessary to serve as a director too.

Martial arts clubs operating as a CASC

As mentioned earlier in this article, a CASC is a Community Amateur Sports Club. Operating as a CASC carries the following benefits:-

• You get tax relief on membership and training fees
• Non member turnover (up to £50,000 a year) also has tax relief
• Tax relief on income derived from renting out property (up to £30,000 a year)
• Gift Aid on qualifying donations
• Mandatory 80% charitable rate relief

As with most schemes of this nature there are several conditions to registration. Upon application to become a CASC you need to have already met these conditions for at least the last 12 months:-

• open to the whole community 
• are organised on an amateur basis
• not exceed the income limit
• meet the management condition
• meet the location condition
• have suitable governing document

Although you can read the full terms and conditions on the UK Government’s website, i will give a break down of the most significant points for martial arts clubs.

Open to the whole community

Your martial arts club needs to be accessible to the whole community without discrimination. It is also important that your fees can’t represent a significant obstacle to membership. The CASC guidelines stipulate that the cost of membership should be under £1612 per year. If the cost of membership is above this, you are not considered open to the whole community. This means that you not eligible to become a CASC. If the cost of membership is above £520 per year (£43.33 a month), you will need to make provisions for those who cannot afford to pay more than £520 a year.

The cost of membership includes any costs associated with joining your club. For example, you’re most expensive 12 months membership, plus the cost of any equipment that is required to fully participate your clubs activities for a year. One of the examples the CASC guidelines give is that those who want to take advantage of the reduced price membership must apply to the secretary of the club and demonstrate that the full cost of membership would not be affordable to them. Although some clubs may not initially like the sound of discounting their service, it comes down to your objectives, mission and vision for your club. If that is to maximise profit to pay yourself a bigger salary, this route probably isn’t for you.

Organised on an amateur basis

A club is considered to be organised on an amateur basis if it is set up as a not for profit entity and only provides the ordinary benefits associated with an amateur sports club. As described previously in this article, a ‘non distribute’ clause is required to meet the not for profit requirement. Your club can pay members for goods or services in either a self employed or employed capacity as long as these services are charge at the ‘going rate’. The main purpose of the club must be to promote participation in an eligible sport. Similar to the requirements for VAT notice 701/45, the sport or in this case martial art has to be listed on the Sport England website.

Not exceed the income limit

The CASC guidelines split the income derived from members and income that comes from people outside the club. The limit for income from outside your membership is £100,000. This includes any income that comes from renting out your facilities. Income that is generated from your members is not limited. If income from outside your membership is likely to exceed £100,000, it is possible to set up a trading arm owned by the CASC. This can be useful if your martial arts club has a bar or cafe that are open to the public.

Meet the management condition

The managers of your martial arts club should meet the ‘fit and proper person’ test. This includes all directors and any employees that have significant control over funds. An individual is considered to be ‘a fit and proper person’ if they ensure, or are likely to ensure, that funds and tax reliefs are used only for the benefit of the club.

Meet the location condition

If your club is based in the UK you have already met this requirement

Have suitable governing document

This means that your governing document must contain specific model clauses. As already highlighted, there are a couple of providers available that can setup a CIC for you. These templated setups will contain these model clauses in the memorandum and articles of association (Mem & Arts) used for the companies formation.

Applying for funding and grants

When i first setup my martial arts centers as CICs i wanted to do it in a way that would mean they would be eligible for grants and funding. My first priority was that the clubs would be commercially viable without external funding. This way any grants would be the icing on the cake but they would be totally sustainable without it.

Although i have successfully applied for a few grants in the past i am now going to pass you over to Lisa Jagger. She has spent the last 20 year in this sector and has successfully applied for grants for a whole range of organisations. She now runs a website dedicated to helping not for profit organisation apply for their grants and external funding.

What are your groups aims and outcomes?

The committee need to agree what the priorities are for the group and only apply for funding that will achieve those aims. Funding is not given for the committee’s benefit – but to help solve problems and address issues within the community the organisation serves. It is worth spending a bit of time identifying ‘WHY’ your group exists, what your overall aim is, and how money will help you make a difference to your community.

Minimum requirements for applying for funding

• You will often need a committee with at least three unrelated people. They usually need to take the role of Chair, Treasurer and Secretary. If you are setting up a brand-new group, these ‘Officers’ can be appointed.The rules of your group will state how they should be re-elected at your first Annual General Meeting (AGM). This should take place within a year of starting the group.
• You will need to adopt a set of rules, known as a constitution. Template documents can be found on the internet, or ask the funding team at your Local Authority or voluntary sector support organisations.
• You will need a bank account in the same name as your group, funders often require two unrelated people as cheque signatories.

Summary

Operating as a not for profit isn’t for everyone. If you have dreams of building your membership and then selling the club / business to make a fortune, this probably isn’t the format for you. If on the other hand you want to earn a reasonable living and build something that may be around for decades to come, this format maybe a good fit. Running your club on your own can be a lonely place. Having the right directors on board can give you someone to discuss ideas with. There maybe coaches out there that love the idea of their martial arts club trading as a not for profit but are not keen on the additional limitations that come with CASC status. It is of course possible to just implement of this solution.

If you want to maximise your impact using a not for profit configuration you could using the suggestions in this article in combination with modern martial arts marketing methods, especially those focusing on facebook marketing and the SEO of your martial arts website should .

I would like to finish this article with two thoughts

Think long and hard before changing the way you operate your club. Do your homework and make sure you have the right people around you.

“If you want to go fast, go alone. If you want to go far, go together.”