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HMRC internal manual

Business Income Manual

Meaning of trade: mutual trading and members clubs: mutual associations: specific activities: agricultural co-operatives: financing

Members not allowed to deduct loans made to co-operative

Co-operatives generally derive their funds for capital expenditure from three sources:

  • loans from members,
  • government or EU grants
  • bank borrowing.

A member is not entitled to a deduction in computing the amount of their trading income for a loan they make to a co-operative; this is so even when it is a condition of membership that such a loan be made.

Capital grants may be deducted from the cost of the asset for capital allowances purposes, but such allowances are not available in respect of mutual trading.

Revenue expenditure is generally financed by charges imposed on members, usually in proportion to the amount of produce committed to the co-operative and the use the member makes of its facilities, but grants may also be available from the UK government and the EU towards revenue expenditure. With the exception of a grant towards the cost of formation (which is a non-allowable expense) grants are to be included in computing the surplus or deficit of (non-mutual) co-operatives.