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HMRC internal manual

Business Income Manual

Meaning of trade: mutual trading and members clubs: non-mutual insurance trading activities: corn trading association

In the case of The Liverpool Corn Trade Association Ltd v Monks [1926] 10TC442 the Revenue successfully argued that the annual surplus was taxable.

The Association was a company limited by shares, its function was to:

  • promote or oppose legislation affecting the corn trade,
  • provide and maintain a market, and
  • establish a clearinghouse for debts.

Members paid an entrance fee and an annual subscription. The articles provided that all the income was the property of the Association and allowed the directors to dispose of it as they thought fit. There was a power for the directors to pay a dividend.

Rowlatt J. observed that there had been no shareholders in the Styles v New York Life Insurance Company [1889] 2TC460 case (see BIM24035) where policyholders were members of the company and got back what was not wanted. In that event it was possible to ignore the fact of incorporation. But in the Association’s case where there was a share capital and a chance of a dividend, the fact of incorporation could not be ignored (see BIM24405). Rowlatt J. indicates that for mutual trading to be present any surplus must be distributed to contributors:

  • as of right, and
  • as contributors and not as shareholders.

You should be aware that nowadays such an association would most likely be considered to be a trade protection association (see BIM24800).