The new Trust Registration Service and unincorporated sports clubs
The new Trust Registration Service (TRS) brings with it a requirement for most unincorporated sports clubs in the UK to register with HMRC before the end of this month.
This will have implications for both clubs and their professional advisers. Many club treasurers are chartered accountants volunteering for clubs which provide valuable sporting activities in their local communities. This article should help clarify the registration obligations for treasurers, their clubs and professional advisers.
An article published by ICAS in early 2020 explained the background to this new TRS but indicated that more details were expected from HMRC. Most of these have now been provided in HMRC’s Trust Registration Service Manual. The following sections of the Service Manual are most likely to be of interest to professional advisers:
- Types of trust that need to be registered (TRSM 20000)
- Registration (TRSM30000)
- Discrepancy reporting (TRSM50000)
- Penalties (TRSM 80000)
The legal authority for the new TRS is the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended in 2020) which apply throughout the UK. Under these express trusts are required to register with the TRS even if they are inactive.
The deadline for registration of these express trusts if they are not taxable trusts and were in existence on 6 October 2020 and not exempt is 1 September 2022.
Most existing unincorporated sports clubs with their assets owned via a trust will be required to register before this deadline. Other newly created trusts will have until the deadline or 90 days after creation to register.
There have been and will continue to be separate registration requirements for taxable trusts which are unlikely to be relevant for unincorporated members sports clubs.
Impact on unincorporated sports clubs
Unincorporated sports clubs and associations have no separate legal capacity so their property must be held by individuals or by a legal entity on their behalf. This will be the case for freehold or leasehold property (heritable property in Scotland), bank accounts, intellectual property and equipment. Often within sport property is held by those club members willing to act as trustees. This may be evidenced by a formal trust document with some National Governing Bodies of Sport providing model documents of these “bare trusts” for their affiliated members and may even arise by implication. The appointment of trustees may also be provided for in the Club’s Constitution. The question is whether these bare trusts are required to register with TRS following the Regulations and the guidance in HMRC’s TRS manual.
An express trust is any trust that is set up deliberately usually in the form of a written document. This is in contrast to other types of trust which may be set up automatically by the operation of the law.
An unincorporated association or club which uses a bare trust would therefore be an express trust as it will have been set up deliberately by the club’s members at the time. This general position is confirmed by HMRC’s guidance in TRSM23060. This goes on to state that if the unincorporated association is a charity then it is excluded from registration. However this exclusion does not apply to associations registered with HMRC as community amateur sports clubs (CASC’s). HMRC’s Example of The Readstone Tennis Club in TRSM23060 confirms this.
An unincorporated association liable to corporation tax does not make the bare trust which it has established a taxable trust for TRS purposes. The bare trust remains a non-taxable trust under TRS subject to the rules explained in this article.
Consideration of this issue for unincorporated sports clubs
In addition to considering the detailed guidance in HMRC’s TRS Manual guidance has been sought from HMRC’s Trust Policy Adviser responsible for TRS. HMRC has confirmed that there is no exclusion for bare trusts unless one of the exclusions in the Regulations applies. The conclusion therefore is that the only exclusion which may be available is where the club is a charity. As I note above HMRC has confirmed that unincorporated CASC’s have to register with TRS.
In the light of this all unincorporated sports clubs should review the requirement for their bare trusts to register with TRS. Registration will involve providing detailed information including the identification of a lead trustee and specific details for lead and other trustees (see TRSM32000 and the following pages). Once registered, changes e.g. in trustees or their details must be completed online within 90 days using TRS. In the light of these requirements now might provide a good opportunity to review the documentation supporting the trust arrangements and to ensure they are up to date.
It is worth noting that non-taxable trusts are not required to provide details of valuations of trust assets at the point of registration. This means that unincorporated sports clubs structured as bare trusts do not need to provide asset valuations because they cannot be taxable trusts for TRS purposes (see “Bare trusts” at TRSM10030).
Reporting discrepancies –the position of professional advisers
From September “Relevant Persons” must ask trustees or agents who are engaging in a new business relationship with them to provide proof of registration on the TRS. A Relevant Person is an organisation working in a professional capacity that carries out due diligence checks under anti-money laundering regulations. Relevant persons can include financial institutions, auditors, accountants, tax advisers and legal professionals (see TRSM24020). The work must be expected to have an element of duration at the time when contact with the trust is established.
The trustee or agent who is engaging in the business relationship will need to use the online service to download a pdf copy of a report to show proof of registration and then send it to the Relevant Person. If a Relevant Person finds a discrepancy in trust data (or there is no data at all since the trust is not registered on TRS) when reviewing proof of registration the organisation will in the first instance seek to resolve it with the trustee or agent who is engaging in the business relationship. If, for example, the trust is not registered it should register.
If the discrepancy cannot be resolved then the Relevant Person has to report the discrepancy to HMRC. This will be acted upon by HMRC who will ask the trust to resolve the discrepancy. HMRC say that once the Relevant Person is satisfied that the discrepancy has been resolved (presumably registration with TRS in the case of an unregistered club) and the proof of registration document down loaded and received, they can continue to engage in a business relationship with the trust.
It seems that this process has important implications for both the unincorporated club and its professional advisers. An unregistered unincorporated sports club wishing to engage accountants to provide ongoing advice may be prohibited from doing so until its trust is registered with TRS. This may delay the provision of valuable financial advice.
Failure to register or keep TRS information up to date on time may lead to a financial penalty imposed under the Regulations. Trustees will be able to appeal any penalties charged.
In recognition of the fact that the registration requirement is a new and unfamiliar obligation for trustees HMRC say there will be no penalty for a first offence of failure to register or late registration unless that failure is shown to be due to deliberate behaviour on the part of the trustees. However HMRC may issue a warning letter if the trust is not registered requiring registration within a certain time period .Failure of the trustees to do so subsequently may trigger a penalty. Where failure to register is due to deliberate behaviour on the part of the trustee a £5,000 penalty per offence may be charged.
The penalty regime for failure to keep information on TRS up to date is similar to that for failure to register. Again where the failure to update is due to deliberate behaviour on the part of the trustees a £5,000 penalty may be charged per offence.
Without doubt the requirement for unincorporated sports clubs which are not charities to register with TRS is creating additional red tape for those clubs causing them costs in terms of the volunteer time of club trustees and professional fees for those who need assistance with TRS. It is difficult to see the benefit, if any, of this in preventing money laundering. TRS will impose a burden on volunteers at tens of thousands of unincorporated sports clubs, most of whom are unaware of the requirement to register under TRS and are likely to fail to do so without prompting. Accountants have an important role to play in raising this issue with their local clubs.
About the author
Richard Baldwin is an independent tax adviser who has specialised in the taxation of sport since 1981. Since retiring as a Deloitte tax partner in 2005 he has advised many community sports clubs on tax. He is a member of HMRC’s Charity Tax Forum which has been involved with discussions on TRS. He and colleagues within National Governing Bodies of Sport have received guidance on TRS from HMRC’s Trust Policy Adviser.
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