Revenue's new rules could be expensive for clubs: A pay-and-file system will put the profits of many unincorporated associations under closer Inland Revenue scrutiny. Maria Scott reports

Pony Club branches, pigeon fanciers, darts players and collectors, beware. If you indulge your passion through membership of a club, be on guard against tax bills.

Changes are under way in the taxation of unincorporated associations, which includes most clubs.

Clubs have always been liable to tax on their profits but rules just introduced force them to adopt a 'pay-and-file' system of self- assessment.

This means they must work out their own likely tax liability, pay the bill and then file their accounts with the Inland Revenue.

The actual amounts payable will not change, but the new system means the Revenue is checking up on clubs to ensure they pay their bills.

It is contacting them to outline their obligations, a Revenue spokeswoman said.

Clubs that have been tardy, or ignorant of their obligations, may come down to earth with a bump.

Brian Todd, a partner at the accountants Coopers & Lybrand, said he believed the new pay-and-file system would relieve the Inland Revenue of work, creating more time for it to chase errant taxpayers.

Clubs are liable to corporation tax on their profits, but according to Mr Todd this works out at 25 per cent for most.

This includes interest on bank or building society accounts but not subscriptions.

However, there will normally be no bills if the organisation is non- profit-making. If a club does make profits but ploughs these back into the organisation - in the form of prizes, for example - this will exempt it.

'The exemption from tax depends on mutual trading,' Mr Todd said. 'The club must have a proper membership structure and not be open to outsiders.

'If the club offers services they must be provided to the members only. If members of the public are allowed in as guests, any profit from charges made to them are looked on as trading profit and would be taxable.'

Mr Todd said that until now, it has been possible for clubs to provide a copy of their accounts to their local tax inspector and a covering letter explaining that they are not making a profit.

He expected that under the new system, they would have to fill in pay-and-file returns.

As payers of corporation tax, clubs were normally liable to tax on they bank and building society interest they earned, although they could register to receive the interest gross.

However, in most cases tax inspectors would overlook interest investment accounts unless large amounts were involved. 'The area is vague,' Mr Todd said.

Alon Risdon is secretary and treasurer of the British Correspondence Chess Society, a club whose members play chess by post. There are 520 members and they pay subscriptions of pounds 10 a year.

'We started to accumulate a healthy bank balance about five years ago and realised we were losing a significant amount of interest because tax was being deducted from our bank account,' he said.

The club now receives interest gross. Mr Risdon said the Inland Revenue had agreed the club did not need to pay tax on interest because it was a non-profit-making organisation.

Mr Todd said he did not believe that non-profit status automatically exempted clubs from tax on bank and building society interest but inspectors tended to take a view on these matters on a case-by-case basis.

In another development that could eventually benefit many clubs, the Government is considering changes to VAT regulations that would exempt certain clubs from the requirement to pay the tax.

This could eventually lead to back payments of VAT dating to January 1990 and lower membership fees for the members. Clubs most likely to be affected are larger non-profit-making ones that are already liable for VAT.

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