When and Why a Sports Club Might Set Up a Trading Subsidiary

A sports club might want to set up a trading subsidiary if it operates a bar, restaurant, or other income-generating social facilities that don’t qualify as charitable activities.

For sports clubs incorporating as Charitable Incorporated Organisations (CIOs) or Scottish Charitable Incorporated Organisations (SCIOs), a trading subsidiary can be an effective way to manage certain non-charitable activities. This is particularly relevant for clubs that operate bars, restaurants, or social spaces that don’t align directly with their charitable purposes. Here's an overview of when and why setting up a trading subsidiary makes sense.

Why Set Up a Trading Subsidiary?

1. Protecting Charitable Status: Operating commercial ventures like bars or restaurants under a charitable organisation can jeopardise the club’s charitable status. Setting up a trading subsidiary keeps these activities separate, ensuring the parent organisation focuses on its charitable aims.

2. Tax Efficiency: Non-primary purpose trading (such as running a bar) is typically subject to corporation tax if undertaken directly by the charity. By transferring these activities to a trading subsidiary, profits can be gifted back to the charity under Gift Aid, reducing the subsidiary’s taxable income and benefiting the parent organisation.

3. Risk Management: Trading activities inherently carry risks, such as financial losses or legal liabilities. A subsidiary structure isolates these risks, ensuring they don’t threaten the assets or operations of the parent charity.

4. Improving VAT Recovery: A trading subsidiary can improve VAT recovery for both the charity and its trading arm by structuring transactions and registrations appropriately. This is especially beneficial for clubs with significant non-charitable income streams.

   
   

When Should a Club Consider This?

A sports club might want to set up a trading subsidiary if:

• It operates a bar, restaurant, or other income-generating social facilities that don’t qualify as charitable activities.

• The scale of non-charitable trading exceeds the HMRC small-scale exemption thresholds.

• It seeks to diversify revenue streams without compromising its charitable tax exemptions.

• There’s a need to minimise risks associated with commercial activities.

  
  

Practical Steps and Expertise

Establishing a trading subsidiary involves creating a company limited by shares, where the parent charity is typically the sole shareholder. The subsidiary must operate at arm’s length, with clearly documented governance structures and financial agreements to ensure compliance with OSCR (in Scotland) or the Charities Commission (in the rest of the UK).

At Club Development Solutions, we’ve guided numerous clubs through this process, helping them balance their charitable goals with commercial ambitions.

By establishing trading subsidiaries, clubs have successfully operated bars and social spaces while safeguarding their charitable focus and financial health.

If your club is considering incorporation as a CIO or SCIO and operates non-charitable trading activities, a trading subsidiary could be the solution to align your operations with legal and financial best practices. Reach out to us for expert support (andrew@clubdevelopmentsolutions.com).