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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: futures dealing

Some co-operatives are known to carry out hedging transactions in futures to protect the price of the commodity being sold on behalf of members.

Where the scale of the hedging is such that it can genuinely be linked to the sale of the commodity being marketed by the co-operative, you should accept that such dealings are an integral part of that activity, rather than a separate trade. In these circumstances the hedging is being done to benefit the members rather than for the co-operative on its own account. Accordingly the surplus should be regarded as derived from mutual trading.

If however the hedging transactions are carried out in a different commodity, or if the scale of the transactions greatly exceed the transactions carried out on behalf of the members, the co-operative may be carrying on a separate trade and is doing so as a principal rather than as agent for its members. In these circumstances the profit is liable to Corporation Tax under the derivative contracts rules (see CFM50000 onwards).