Social Club Corporation Tax

[lmiddleham]

Hi

I picked up a set of accounts at my local Social Club and I noticed something in it I haven’t come across in my studies and couldn’t find on Google.
In the note on Taxation, it said that the club wasn’t liable for Corporation Tax as it was mutually trading and that the Corporation Tax charge in the accounts related to investment income.

What does mutually trading mean?

Thanks

[Incredulum]

http://www.hmrc.gov.uk/manuals/bimmanual/bim24000.htm

A man cannot make a profit trading with himself. Basic principle of tax.

Therefore a group of men cannot make a profit trading with themselves.

So if you set up a members club, and set up a bar and sell yourselves beer and make a profit... the people who benefit from the profit (the members) are the people who have paid out the cash (the members) so there is no realised profit.

So whilst the club makes a profit, the members do not as they continue to own the club.

[lmiddleham]

Hi

Thanks for the reply.

With regards to investment income – this is money invested by the club on behalf of members and the profits from investment is for the benefit of members so why is this taxed?

[Incredulum]

Because the members are profiting.

If the members put money in the bank, they'd pay tax on it; that they put it into a club shouldn't make any difference - and doesn't.

This is a transaction with a third party, not a transaction among the members.

If I come into your bar and buy a pint of beer, the profit attributable to that is taxable as it is not mutual income.

[lmiddleham]

Right so a members club selling beer doesn't get taxed because it should only be selling to members whose subscriptions buy the beer.

But trading with the bank (ie interest on bak deposits) rather than members is taxable.

Seems logical.

Thanks

[justwundered]

Where a Social Club holds occasional Cabaret Evenings or similar entertainment, and some tickets are purchased by, or for the use of, non-members does the Club still have a liability to pay Corporation Tax on any of the income from these events even though it has made an overall loss for the year due to expenditure having exceeded income ?