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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Particular bodies: credit unions: taxation of union

Credit unions are incorporated as ‘registered societies’ in Great Britain, or industrial and provident societies in NI (see CTM40505) and are therefore within the definition of company for tax purposes at CTA10/S1121 and the charge to CT.  They are subject to the normal rules applying to the taxation of companies, as modified by various provisions in CTA09 and CTA10, some of which apply to credit unions only and some of which apply to all ‘registered societies’.

The effects of these provisions on the corporation tax liability of credit unions are as follows:

(i) In computing the income of the credit union, the activities of making loans to members or placing on deposit or otherwise investing surplus funds are not regarded as the carrying on of a trade or part of a trade – CTA09/S40.

(ii) Interest received by the credit union on loans advanced by it to its members is not chargeable to tax under the loan relationships rules – CTA09/S397 (1), provided returns under ITA07/S887 are made (CTA09/S397 (2)).

(iii) ‘Dividends’ and other forms of ‘share interest’ paid or credited by the credit union are not treated as a distribution for corporation tax purposes – CTA10/S1055.  Neither is any deduction available as either a trading expense or as a non trading loan relationship debit for any dividend, share or loan interest, annuity or other annual payment, paid or payable – CTA09/S397 (3).

(iv) A credit union is not a company with investment business for the purposes of management expenses within CTA09/PART16/CHAPTER2 – CTA09/S1218B (2).

These provisions mean that liability to CT will normally arise only in respect of a credit union’s investment income and chargeable gains unless, exceptionally, it is carrying on a trade not covered by (i) above.

The effect of (iii) and (iv) above is that investment income is normally chargeable in full, without any deduction for expenses or loan relationship debits.  However, any liability on property income (for example, on the sub-letting of the credit union’s own office premises) is computed in the normal way.

The making of loans to its members by a credit union will (notwithstanding the provision in (i) above, which applies only for the purpose of computing income) normally amount to the carrying on of a trade.  Rollover relief may therefore be available under TCGA92/S152 to TCGA92/S158 (CG60250 onwards) on certain chargeable gains.

Although often described as a ‘mutual’ organisation (in the sense that it isowned by its members) the business of a credit union should not be regarded as satisfyingthe conditions of mutual trading (which subject is covered in detail at BIM24000 onwards).