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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Meaning of trade: mutual trading and members clubs: essential requirements: members must control the common fund

In the case of unincorporated associations ownership of the common fund by the contributors is necessary for mutual trading and in the case of corporate bodies, the contributors must control the common fund.

This point was referred to in Revesby Credit Union v The Commissioner of Taxation for the Commonwealth of Australia (112 CLR 564), where McTiernan J. said at page 574:

‘Where a number of people contribute to a fund created and controlled by them for a common purpose, any surplus paid to the contributors after the use of the fund for a common purpose is not income but is to be regarded as a mere repayment of the contributor’s own money. Incorporation of the fund is not relevant. What is required is that the fund must have been created for the common purpose and owned or controlled wholly by the contributors. If it is owned or controlled by anyone else the principle cannot apply.’

See also BIM24225 for discussion of the decision in the Westbourne Supporters of Glentoran v Brennan (SPC22) case as to what amounts to control.

The requirement that the contributors control the common fund does not mean that each contributor has to take part in the day to day management of the entity in question.