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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: not conducting a mutual trade

S132, S499 Corporation Tax Act 2009

If a co-operative is not engaged in mutual trading, the normal Corporation Tax rules will apply subject to the following special rules.

If the co-operative is a registered industrial and provident society (IPS - see CTM40500 onwards) or meets the conditions to be considered a ‘UK agricultural or fishing co-operative’ the following applies under S499. Any dividend, bonus or other sum payable to a shareholder is treated as interest under a loan relationship of the co-operative if it is payable by reference to the amount of the shareholder’s holding in its share capital. This rule entitles the IPS or co-operative to a deduction for such payments in computing its trade profit or loss.

For corporate shareholders, the payment is normally treated as a trade receipt under the loan relationship rules. If the shareholder is not trading, the payment is a non-trading loan relationship credit. For non-corporate shareholders, the payment is treated as interest under S379(1) Income Tax (Trading and Other Income) Act 2005.

A ‘UK agricultural or fishing co-operative’ is a co-operative association which is established and resident in the UK and whose primary objective is assisting its members in carrying on agricultural or horticultural business on land in the UK or business consisting in catching or taking fish or shellfish. A ‘co-operative association’ for this purpose is a body with a written constitution from which the Secretary of State (or Northern Ireland Department of Agriculture and Rural Development) considers that it is in substance such an association.

If the co-operative is an IPS then Section 132 provides that such things as discounts, rebates and dividends paid in respect of the members’ dealings with the society are to be allowed as a deduction in computing its trade profits. These payments should normally be included as a trading receipt in the recipient’s accounts.