Sports National Governing Bodies are responsible for overseeing the administration of their sports. The sports they administer vary from lucrative sports with a global audience, to more niche sports played mostly at an amateur level. Each NGB operates in unique circumstances and faces its own challenges.

However, one thing that all NGBs have in common is the desire to operate in the most financially efficient manner. In this article, Ben Thomas explores whether NGBs are using the benefits that charitable status offers sufficiently.

Charitable status: an overview

Charities are organisations which are established for exclusively charitable purposes and which fall within the jurisdiction of the High Court. Everything that a charity does has to fall within one or more of a list of charitable purposes which are set out in the Charities Act 2011. This list includes the advancement of amateur sport (which covers most, but not all sports), the provision of facilities for leisure or recreation purposes, and the advancement of education, among others. Each of these purposes is relevant to, and used by, sporting charitable organisations.

Additionally, charities must operate for the public benefit. This means that the activities must be beneficial, a sufficiently broad section of the public must benefit from those activities, and any private benefit must be no more than incidental to the attainment of the wider public benefit.

Charitable status: benefits

There are myriad benefits to charitable status, but the principal benefit for the purposes of this article is the tax treatment of charities and charitable activities:

  • Income obtained by charities arising from the provision of charitable activities is exempt from corporation tax. Charities can undertake a certain amount of non-charitable trading using various tax exemptions. Where a tax exemption is not available, charities may be able to set up a trading subsidiary to undertake non-charitable trading tax-efficiently.
  • Donors benefit from tax relief on qualifying donations to charities. For an individual, this means that donations to charities are deducted from their taxable income before income tax is applied. For companies, it means that donations are deducted from their taxable profits before corporation tax is applied.
  • Finally, premises which are wholly or mainly used for charitable purposes are subject to mandatory rates relief and, potentially (depending on local policy), discretionary rates relief. Together, these reliefs can mean that a charity pays no business rates at a particular property.

NGB activities

Every NGB almost certainly carries out some activities which are charitable. Programmes which aim to increase participation in healthy recreation, for example kids camps in summer holidays, are obvious examples. However, there are also less obvious examples of activities which are capable of being charitable. For example, programmes aimed at developing talent in those in full time education can, under certain circumstances, be charitable; diversity programmes may fall within the charitable object of promoting diversity and equality; and some activities which focus on building capacity in local sports organisations are capable of being charitable, too. It is even charitable to fund the core costs of non-charitable organisations to the extent that those costs pertain to charitable activities.

But it is equally likely that each NGB carries out some activities which are not charitable. It is not charitable to promote sport generally, and all charitable activities must fall within one of the charitable purposes set out in law, as well as being for the public benefit. For example, activities which develop elite adult athletes or sportspeople who are paid to participate are unlikely to be charitable. This presents obvious problems for NGBs, particularly those with elite talent pathways.

Therefore, most NGBs will likely be in a position where they carry out certain activities which are charitable and others which are not.

NGB options with charitable status

In my view, most NGBs could benefit from using charitable status in one of the following ways, if they are not doing so already:

NGB as a charity: this will be appropriate only for those NGBs whose activities are all, or mainly, charitable. The NGB can establish a trading subsidiary, which would be a normal company limited by shares, to carry out those activities which are non-charitable. That subsidiary would then donate its pre-tax profits to the parent charitable NGB, reducing or eliminating its corporation tax liability.

Corporate foundation: this will be appropriate for those NGBs whose activities are mainly non-charitable. Under this option, the NGB would remain a private limited company and would establish a charity of which it is the sole corporate member (often referred to as a “corporate foundation”). Charities must maintain a sufficient level of independence and a corporate foundation should not be viewed as a subsidiary in the typical sense. However, it is possible, workable and, in many cases, beneficial, for an NGB to set up a corporate foundation and route charitable activities through that entity. The foundation would be independent but would ultimately be reliant on the NGB for funding and resources, and the NGB would retain the rights of sole membership, so any mission drift is unlikely. The NGB would benefit from corporation tax relief on donations to the charity.

“Sister” charity: this will likely be appropriate for those NGBs for whom there is a clear distinction between their professional (non-charitable) activities and its amateur and other charitable activities, or where there is a relatively even balance between charitable and non-charitable activities (although the corporate foundation route would also be open to such NGBs). The NGB would set up a separate charity, of which it is not the sole member, and would hive off its charitable activities into this entity.

In all the above cases, it is important to remember that once assets become charitable, it is essentially impossible to extract those assets again, except for market value. Therefore, while there are benefits of using charitable status, it is not something that should be taken on lightly.

Your NGB: next steps

If you doubt that your NGB is optimising the benefits that charitable status can offer, I would recommend that you:

  • undertake an audit of your activities to determine the proportion of your activities that are, or could be, charitable; and
  • consider what this means for your structure, and whether any of the three options outlined above might be appropriate for your organisation.

We can advise on these steps. Please contact Ben Thomas at [email protected] if you would like to set up a free initial 30-minute call.