BIM24470 - Meaning of trade: mutual trading and members clubs: allowable expenditure: members golf clubs: is intention relevant?
The case of Hutchinson & Co (Publishers) Ltd v Turner [1950] 31TC495 shows that the destination of any profits has no bearing on their assessibility. Thus placing any or all of a surplus into a fund for capital expenditure does not secure that the profits remain untaxed.
A members’ club may seek to attract non-member custom with a view to subsidising members. That non-members in effect subsidise members is of no relevance. Buckley LJ in the Court of Appeal in The Carlisle and Silloth Golf Club v Smith [1913] 6TC48 & 198 case dealt with this issue in the following terms (6TC at page 200):
‘The fact that in the pocket of the club it [income from non-members] saves the pocket of the member by reducing in his favour the current expenditure which otherwise he would have to bear is not a material circumstance for the purpose of ascertaining whether the club as a society has made a profit or not.’
In some cases the evidence may show that overall the members’ club seeks to make little or no profit; any profit, in the absence of some specific purpose, only contributing to a reserve distributable to members.
The club may also wish to minimise individual members’ subscriptions. To that end the club may take steps to generate income. One way of doing so is to offer the use of their facilities, at commercial rates, to outsiders. Carlisle and Silloth established that profits made by a members’ golf club from the provision of its facilities to visitors in this way was chargeable as trade profits. This is so whether or not the club accounts show an overall surplus.
For a detailed explanation of the so-called ‘rounds of golf’ method of determining the allowable expenditure in the case of a members’ golf club see BIM24360.