BIM24455 - Meaning of trade: Mutual trading & members clubs: allowable expenditure: trades that are partly non-mutual
How to apportion between the mutual and non-mutual aspects of the trade
As explained at BIM24210, the typical members鈥� sporting club does not carry on a trade. The activities undertaken by the club lack the required degree of commerciality that case law shows is an essential characteristic of a trade.
The most commonly encountered situation is that a bona fide members鈥� club does not trade with its members but that the club may carry on a trade in making sporting or other facilities available to non-members on a commercial basis. The question then arises as to how to apportion the expenses incurred by the club between its non-taxable dealings with members and its taxable dealings with non-members.
A typical club will incur expenses that fall into three broad categories:
- wholly for members
- wholly for non-members, and
- both for members and for non-members.
In calculating the amount of the club鈥檚 profits taxable as trade profits the expenditure incurred wholly for members (for example the membership secretary鈥檚 salary, costs of a members only bar) will not be allowable at all. The costs that are incurred wholly for non-members (for example costs of advertising to attract non-member custom) will be allowable provided of course that they otherwise meet the trading deduction rules. Problems can arise with the 鈥榤ixed鈥� category of expenditure and this is discussed in the guidance that follows.