COVID-19 Limited Companies scenarios for UK Golf Clubs

Background

The Professional Golfers’ Association is aware that Golf Clubs operate under a variety of business models.

Almost every Golf Club is currently affected by business interruption due to the COVID-19 emergency, while government advice and support is evolving almost daily.

Against this background, the Association is keen to provide some clarity to Golf Clubs on what government support is currently available under a number of scenarios, depending on how their individual businesses are constituted, and how this support might be accessed. This information is for guidance only. It is not intended to be prescriptive and legal and accounting/tax advice should be sought where appropriate.

Types of business model

The key business situations under consideration are:

• Unincorporated Associations
• Limited companies

Many Golf Clubs, whether members clubs or proprietary clubs, will be constituted under these models and will operate as businesses subject to Corporation Tax, VAT, PAYE and business rates as appropriate to their operations.

LIMITED COMPANIES

Definition

A limited company is a form of business which is legally separate from its owners and directors. It must be incorporated through Companies House, which confers on it the status of being a separate legal “person”, with a unique company registration number. It is governed by the requirements of The Companies Act and its own Articles of Association, and must make returns of information to Companies House.

The most prevalent types of limited company applicable to the business activities of Golf Clubs is the private company limited by guarantee or by shares. In general, these are a popular structure for small businesses. The owners of the company are protected by limited liability so the amount they have to lose if the company fails is strictly limited. This differs from an unincorporated association where there is no legal distinction between the members or owners and the business, and consequently leaves the members or owners potentially having to sell or surrender their personal assets to meet the debts of the business.

Private limited companies cannot offer shares to the general public.

As a separate legal entity, a limited company is subject to taxation in its own right, and needs to register for Corporation Tax with HMRC and, depending on its operations, may also be subject to (and require registration for) other taxes, such as VAT, PAYE and Capital Gains Tax. Accounts must be filed with both HMRC and Companies House each year, in most cases within 9 months of the financial year end of the business.

Scenarios

Scenario 1 - Oakmoor Golf Club in England which is a company limited by guarantee, had just about been holding its own before lockdown and which hopes to maximise its use of Government support to get back on track after the pandemic
Scenario 2 - Dunway Golf Club in Scotland which is a company limited by guarantee, had operated very successfully pre-lockdown and which intends to expand on that success when golf reopens in the UK

The scenarios that follow are intended to be samples of situations which might arise, and should be treated as indicative to allow a Golf Club operating as a limited company to best assess its likely situation in relation to the COVID-19 financial challenges.

The Club, despite facing the same challenges in terms of membership numbers, visitor footfall and cost management as many other facilities, still manages to maintain a healthy core membership.

The Club employs a General Manager and an Assistant, a Barman who has two part time staff to call on, and a team of four Greenkeepers - a total of 9 employees. The catering service is franchised and clubhouse cleaning is provided under contract. The PGA Professional has been retained at the Club for over 15 years and provides the full range of golf services to members and visitors through his team, which includes a qualified assistant PGA Professional and a trainee.

The business of the Golf Club is directed by a volunteer Board of 12 directors, who are members of the Club, with a Chairman who serves a term of 3 years heading the Board and providing some continuity of leadership, and a President, appointed annually, as the public facing representative of the Golf Club.

Membership numbers have fluctuated a bit in recent years but have settled at around 600 ordinary members and close to 85 Clubhouse members. The latter category of membership was introduced by the Board in 2019 with a view to offsetting a fall-off in ordinary membership numbers, engaging with nomadic golfers by providing a number of rounds per year, and encouraging the local community to access the bar and catering facilities the Club has to offer. While the Club made an operating loss of £10,000 in 2017, it managed to break even the following year, and in 2019 generated a small surplus as the Board’s innovations began to take effect.

The Board was keen that, during 2020, the ordinary membership numbers should be expanded through attracting new members and converting some of the Clubhouse members to full members; increasing the number of Clubhouse members to keep local engagement on an upward curve; and concentrating efforts on increasing the number of visiting parties to generate additional income. The budgeted surplus for the year was £25,000 which it was intended to use to bolster reserves, deploy on course development and support the forthcoming centenary celebrations for Oakmoor Golf Club in 2021.

The onset of the COVID-19 pandemic crisis in March 2020, culminating in the closing down of golf throughout the UK, has necessitated a rethink by the Board, which is committed to consolidating the position of the Club and taking advantage of government support available in order to minimise the financial and operational impact of this unforeseen business interruption.

Following the closure of golf clubs across the UK, the initial consideration was support for staff who might otherwise have been served their notice in the absence of work either on the course or in the clubhouse. The Board decided that the Assistant Manager, Barman and the two part time bar staff would be furloughed through the Coronavirus Job Retention Scheme, of which 80% of the staff wages (up to £2.5k net per month) would be reimbursed over a 4 month period to the end of June. On 12 May 2020, the scheme was extended to the end of October 2020 with no changes to the content anticipated until the end of July.

The decision was communicated to the affected staff who understood the Club’s need to mitigate their salary costs when there is no work for them to undertake, and were generally happy to have a regular income throughout the pandemic and a job to return to when Golf reopens. The Club took the difficult but prudent decision not to top up wages to 100% on the basis that of the uncertainty as to how long the golf course would be closed and felt it was imperative to retain cash in the short term.

One part time member of bar staff was not on the payroll at the cut-off date of 19 March and could not therefore be furloughed, so his contract has been terminated after giving due notice. He has been given an assurance that, when circumstances allow, the Club is keen to re-employ him. In the meantime, he is intending to apply for Universal Credit.

As a national championship standard course, the Board agreed that is was necessary to keep a greenkeeping presence to undertake essential maintenance, so two of the four Greenkeepers continue to work, while the other two are furloughed under the terms of the Coronavirus Job Retention Scheme. Should either of the greenkeepers fall ill or display symptoms of COVID-19, the contingency is for the furloughed greenkeepers to return to work following the minimum three week furlough period.

The online portal for claiming reimbursement under the terms of the Scheme went live on 20 April, at which time the General Manager logged into the Government Gateway, provided details of the furloughed employees and the duration and amount to be claimed, and is received payment within 6 working days of having processed the application.

The Club is aware of the Business Rates Relief which provides businesses in the retail, hospitality and leisure sectors in England a business rates holiday for the duration of the 2020/21 fiscal year. This relief is applied automatically by the local authority and requires no action from the Club. The impact on the Club’s short term cash flow has therefore been positive, and will continue throughout the rest of the year.

Point of information - If the Club had been based in Scotland or Wales, the Business Rates holiday would have been for the same 12 month duration for retail, leisure and hospitality businesses, with a condition that rateable value is under £500,000 in Wales. In Northern Ireland the Business Rates holiday is for a 3 month period, covering April, May and June 2020.

While the Club is not in any immediate danger financially, it is in need of an injection of cash to contribute to fixed outgoings. Investigations were carried out into possible eligibility for the Retail, Hospitality and Leisure Grant, which is specifically for this sector, but since its rateable value is over £51,000 the Club is not eligible.

Another option the Board is considering is the Bounce Back Loan Scheme which is a government backed loan to help small businesses through the COVID-19 outbreak. Loans of between £2,000 and £50,000, up to a maximum of 25% of turnover and underwritten by the Government, may be available, interest free for the first 12 months, with no early repayment penalties during that time. After the first 12 months, a flat rate of 2.5% interest will apply, over the remainder of the 6 year term of the loan. While the Board is aware of the need for short term cash, its members remain hopeful that the successful application of the other business support will be enough to maintain operations, as borrowing contradicts the strategic aim of bolstering reserves over the next few years. The Bounce Back Loan Scheme went live on 4 May 2020 and is intended to run for an initial 6 months so the option to apply for a loan remains available over the next few months, should the need arise.

Another business support scheme the Club is looking to take advantage of is the VAT payment deferral, which enables VAT payments due between 20 March and 30 June 2020 to be deferred, with a payment deadline of 31 March 2021. The General Manager has cancelled the VAT direct debit, but has submitted the return for the quarter ended 31st March 2020 on time while the deferred debt has been incorporated into the cash flow forecast over the next 10 months.

The Board is aware that HMRC are considering deferrals of PAYE payments, depending on the individual business’s circumstances, if they have been affected by COVID-19. While the Club has met its PAYE obligations up to April, this is also being considered as lockdown continues as a method of preserving short term cash. The General Manager will contact HMRC to discuss a potential arrangement.

The Club is keen to build on the strong relationship it has with the PGA Professional As a separate legal entity, operating as a limited company, the PGA Professional has furloughed himself, his assistant and trainee through the Coronavirus Job Retention Scheme. In discussions, he has, however, expressed a willingness to return to work immediately on the reopening of golf, having already completed the minimum three week furlough period.

In summary, the Club has taken advantage of the Coronavirus Job Retention Scheme, Business Rates Relief and VAT payment deferral, and remains hopeful that this will be enough to sustain operations through the period of lockdown and restart. The contingency plan is to apply for a PAYE payment deferral and a Bounce Back Loan which will provide short term cash should it be needed.

Both the Club and the PGA Professional are keeping up to date on the arrangements for reopening Golf in England, with courses being allowed to open from 13 May. The full greenkeeping team have now completed their minimum furlough period and have returned to work, following social distancing guidelines, getting the course ready for reopening. The Club has begun to implement a number of safeguarding actions so that the course can open safely – for example all tee times need to be booked online, number of players per tee time will be restricted in line with recommended practice, social distancing will apply, and the contract cleaners are now operating a limited service to prepare basic facilities (toilets and locker rooms) for the restart.

In addition, the PGA Professional is ready to recommence his business, again in line with industry and Government guidelines, and begin to offer a full service to members, with safety measures in place so that social distancing and appropriate hygiene standards can be maintained at all times.

Overall the Board has used available support as it deems appropriate at this time, and the Club is in a position to begin operating again on 13 May, while being able to respond to changing requirements as they emerge, and looks forward to leading the Club into its centenary celebrations in 2021.

In conclusion, the Board and management at Oakmoor Golf Club has had success in recent times in improving the financial position of the Golf Club. This, along with a culture of longer term planning, strategy and a willingness to address issues head on, put the club in a position to be able to identify and take advantage of the support provided by Government, including finance, deferrals and the option for a loan, in order to mitigate the impact of the COVID-19 pandemic on its financial position and operational activities. It can now consolidate its position as golf restarts in England by:

• Careful planning, strategy and focusing locally and on its membership
• Analysing its business needs on an ongoing basis and reacting to necessary changes as and when they are identified
• Prioritising on safety with strict hygiene and logistics.

The Club, because of the quality of its golf courses, attracts visiting players from around the world. It has a strong membership base and is popular in the corporate and society golf markets.

Constituted as a company limited by shares, it boasts two championship class 18-hole courses, and top practice, retail and clubhouse facilities.

The Club employs a General Manager and a small team of administrators with specific emphasis on finance, marketing and membership; a Food and Beverage Manager with a supporting Clubhouse Services Team; and a PGA Professional Director of Golf who manages the on course play, greenkeeping, retail and coaching activities. The PGA Professionals attached to the Club in retail and coaching roles are all employees, while the greenkeeping team, led by the Links Superintendent, is substantial as would be expected for the standard of facility.

The business of the facility is directed by a Board of 8 directors, with a variety of professional backgrounds and skills. The Chairman, a position without specific time limits, leads the Board and a Club President, who serves a two-year term of office, is the public facing representative of the Golf Club.

The onset of the COVID-19 pandemic crisis in March 2020, culminating in the closing down of golf throughout the UK, has had a serious impact on the Golf Club’s turnover, since there are no corporate, society or international visitors. Visitors who had booked tee times during the period of lockdown have been contacted and given the opportunity to rebook at some future date, and while this offer has been accepted by many, others have requested a refund on green fees, which clearly has an impact on the Club’s cash flow.

The Club has been in the fortunate position of having built up reserves over the last few years so is financially solid, but the Board is aware that it needs to rein things in in the short to medium term with very little income coming in, but to plan for a strong return when golf and travel become more accessible for all.

With the vast reduction in turnover during the closure of golf courses across the UK, the Management Team have been looking at how expenditure savings could be made to mitigate the financial impact during the crisis. One of the largest outflows the Club incurs is employment costs and therefore consideration was given to accessing available Government support throughout the lockdown.

With golf courses closed and the hospitality sector shut down until further notice, the majority of staff at the Club, from an operational perspective, are not required in the immediate future. The Coronavirus Job Retention Scheme is available to employers who can apply for funding to cover up to 80% of the salaries of staff who have been furloughed rather than having their employment terminated. Management have confirmed that the business will fund the additional 20% of employee salaries.

The Club has built up healthy reserves over the years, allowing management of serious business interruption such as is currently being experienced. The financial position is therefore going to be seriously affected during the COVID-19 crisis, but the Club is at no long term financial or operational risk. .

The Management Team, with the approval of the Board, decided that the senior members of staff will continue to work throughout the lockdown to ready the Club for when golf reopens, and a strategy is in place to manage the recovery.

The key staff who are still working are the General Manager, the Food and Beverage Manager, the Director of Golf and the Links Superintendent. The finance manager, the marketing team leader and the membership manager have also been retained to work throughout the lockdown so that the Club has the capacity to continue to manage its financial operations, its marketing investment and its connection with members, again so that the reputation of the Club is maintained throughout closure and ready for reopening.

Essential maintenance of golf courses is allowed by Government during the lockdown, and as a responsible employer the club has furloughed most of the greenkeeping team and set up the remainder into two teams working on alternate days to achieve the social distancing and safeguarding practices required at this time, in line with industry recommended practice.

The rest of the employees have been furloughed under the Coronavirus Job Retention Scheme, including the PGA Professionals employed by the Club. The decision was communicated to staff who were accepting of the situation, recognising that the measure is temporary and pleased that they are still receiving 100% of their salaries.

The Scheme is available from March 1, 2020 for an initial four month period and the online portal for reimbursement went live on April 20, 2020. The finance manager processed the Club’s funding application; submitting details of all furloughed employees and made a claim for 80% of the salaries, up to £2,500 net per month. Payment was received within six working days of the application having been submitted. On May 12, 2020, the scheme was extended to the end of October with no changes likely to be made to it until the end of July.

Management are aware of the Retail, Hospitality and Leisure Grant, a £25,000 grant available for businesses in Scotland in this sector, but with the qualifying rateable value having to fall between £18,000 and £51,000. The Club’s rateable value significantly exceeds £51,000 so it is not entitled to the grant.

Businesses can also be supported throughout the COVID-19 outbreak through the Coronavirus Business Interruption Loan Scheme, with loans and overdrafts available up to a maximum of £5 million. The loans are 80% guaranteed by Government with no fees or interest in the first 12 months. The maximum length is six years for loans and three years for overdrafts. Annual turnover must be under £45 million and the business must have been adversely impacted by the coronavirus, which the Club evidently has.

Management has forecast that there is enough liquidity to support short to medium term operations, despite the lack of income, as operations have effectively been mothballed. However, dependent on how long Golf Courses are closed in Scotland, the Coronavirus Business Interruption Loan Scheme may be an option for meeting obligations further down the line. Management are monitoring the cash flow forecast daily and are aware of the support should they need it.

Business Rates Relief is available in Scotland for non-domestic properties at 100% from 1 April 2020 to 31 March 2021 for Retail, Hospitality and Leisure Businesses. The Club is aware of this support, which could represent a significant cost saving during closure but also when golf reopens and the recovery process begins. There is no need to apply for this relief - it is automatically applied to eligible businesses by the local authority. To qualify, a property has to be occupied, with properties temporary closed due to COVID-19 being treated as occupied. Management await confirmation of eligibility from the local authority.

Point of information - If the Club had been based in England or Wales, the rates holiday is for same 12 month duration for retail, leisure and hospitality businesses, with a condition that rateable value is under £500,000 in Wales. In Northern Ireland the rates holiday is for a three month period, covering April, May and June 2020.

A measure that Management are looking to utilise is the VAT payment deferral. This allows VAT payments due between March 20 and June 30, 2020 to be deferred to March 31, 2021. As a result, the financial accountant has cancelled VAT direct debit but has filed the VAT return to March 31, 2020 on time as required. Management are cautious that this payment does still need to be made so it has been included in the cash flow forecast,for payment before the due date.

HMRC will also consider PAYE payment deferrals which will be agreed on a case-by-case basis. The Club’s payments are up to date, with the April obligation having recently been remitted. The financial accountant is of the view that HMRC is unlikely to grant a deferral in this case and since staff number are reduced by furloughing, PAYE obligations can continue to be met in the immediate future.

In summary, Dunway Golf Club was in a strong financial position prior to the closure of golf courses across the UK and has the reserves to mitigate the significant drop in income throughout the crisis. Management have correctly applied for Government financial support which is available, particularly the Coronavirus Job Retention Scheme to fund an element of the salary costs of furloughed staff . Business Rates Relief and VAT payment deferral are automatically applied and, dependent on how long the closure, the need to access the Coronavirus Business Interruption Loan scheme will be kept under consideration.

Scottish Enterprise also has some updated guidance and advice on business continuity throughout the coronavirus pandemic and how businesses can be supported.

Management are keeping updated on when golf can potentially reopen, with golf courses in England due to open on May 13, and in Wales on May 18. They are hoping it won’t be long before golf can start up again in Scotland. They are also keeping an eye on any movement on travel restrictions, as international visitors form a significant element of their turnover. The Director of Golf is working on plans for the necessary measures to be put in place in advance of the golf courses reopening. The senior management team holds a virtual meeting daily to discuss developments and what safeguarding measures need to be in place.

Essential maintenance of the course has continued since lockdown, and all furloughed members of the greenkeeping staff have now served at least three weeks of furlough, and can return to work when safe to do so and the volume of work demand. It is recognised that the hospitality sector of the business will be the last to reopen so the clubhouse services team will continue to be furloughed, with the scheme now having been extended until October

It is likely that the number of players per tee time may be restricted when the courses reopen, reducing the capacity for tee times each day. The Director of Golf is considering what plans need to be put in place to manage access to the tee times and will plan to unfurlough staff as necessary. It is intended that all tee times will be booked online, with members only for the first few weeks until demand can be confirmed, and social distancing and hygiene polices implemented for when players arrive at the course, play their game and leave. The team of marketing administrators have returned from furlough to guide the communications to members and to work on a marketing strategy to follow reopening. Management will continue to monitor the changing environment and will maintain contact with their contacts elsewhere in the UK and Europe to learn lessons from venues where golf has already restarted.

In conclusion, while the pandemic has had a serious impact on the operations and profitability of Dunway Golf Club, the business started from a strong position in terms of financial stability, governance and management and has been able to spend the lockdown time effectively in accessing government support, planning for the reopening of golf and developing a strategy for both bouncing back from the effects of the pandemic and capitalising on its healthy starting position to take advantage of the opportunities that will arise when things return to the new normality.

International travel, a considerable source of their visitor footfall, is expected to continue to be restricted for some time, but management have developed a strategy that focuses on providing stability to members in the short term and restarting operations when the Scottish Government’s arrangements allow.