Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Company Taxation Manual

From
HM Revenue & Customs
Updated
, see all updates

Particular bodies: friendly societies: meaning of friendly society

There is no statutory definition of a ‘friendly society’ as such. The general concept of a friendly society is that the membership contributes to a fund to be used for the welfare of the members or for their assistance when in need or distress. However, the term can cover societies with a wide range of differing activities and objectives including social purposes. The Taxes Acts provide for three categories of society:

  • Unregistered friendly societies
  • Registered friendly societies
  • Incorporated friendly societies.

Unregistered friendly societies

This category covers any society that

  • calls itself a friendly society,
  • provides for the welfare of its members, but
  • does not fall into the other two categories.

An unregistered friendly society is charged to CT in the same way as any other unincorporated association (apart from the exemption described at CTM40315), so the lack of a definition does not cause a problem.

Registered friendly societies

A registered friendly society, defined at section 7(1)(a) of the Friendly Societies Act 1974, is a society registered by the Financial Conduct Authority (FCA), which took over the duties of the Financial Services Authority when FSA’s functions were assumed by the FCA and the Prudential Regulatory Authority (PRA) in April 2013.  The FSA had previously taken over the role of the Registrar of Friendly Societies on 1 December 2001.  Any question of whether or not a friendly society is registered can be answered by CTIS (Insurance) or by checking the FCA Mutuals Register online (https://mutuals.fsa.gov.uk/).  Registration provides a society with a formal structure for its operations. It is only open to societies with rules following a prescribed general framework.

The functions that can be undertaken by a registered friendly society are limited to the provision of specified provident benefits for the members and their dependants.  However, the provisions of the Act have been interpreted widely and a registered society may offer its members most forms of life insurance, annuity, unemployment and health insurance contracts.  Some societies take full advantage of these opportunities, whereas others do no more than provide a social forum and make discretionary grants of a benevolent nature.

Societies other than friendly societies can also be registered under section 7 of the Friendly Societies Act 1974.  They are registered in specific categories:

  • cattle insurance societies - S7(1)(b)
  • benevolent societies - S7(1)(c)
  • working men’s clubs - S7(1)(d)
  • old people’s home societies - S7(1)(e)
  • specially authorised societies - S7(1)(f).

All of these fall outside the taxation provisions covering registered friendly societies. Registration of a society within one of these categories is irrelevant for taxation purposes. Some registered friendly societies have a federal structure consisting of a central organisation which has local branches tied to it. These societies generally have the word ‘order’ in their titles. The title of the branch will combine the name of the order with the name of the branch. For example, ‘Ancient Order of Foresters, Court George Stephenson No 4018’ is a branch of the registered friendly society the ‘Ancient Order of Foresters’. For tax purposes, a branch of a registered friendly society is an unincorporated association in its own right and is entitled to the same tax exemptions as a registered friendly society.

Incorporated friendly societies

The Friendly Societies Act 1992 created a new corporate structure within which a friendly society can be set up and registered.  The FCA registers incorporated societies.  They are given a specific registration number and are required to include the word ‘Limited’ in their names.  CTIS (Insurance) can confirm whether or not a society has been registered as an incorporated society.

From 1 February 1993, a new society may only be registered as an incorporated society.  An existing registered friendly society can (but does not have to) convert itself to an incorporated society.  Incorporated societies and unincorporated (registered) societies will therefore continue to exist in parallel.

An incorporated society can undertake much the same activities as a registered friendly society.  Additionally, incorporated friendly societies can set up subsidiary companies, which may engage in a wider range of activities than their parent society.  There are special provisions covering the taxation of profits passed up by a subsidiary to an incorporated friendly society.  These provisions are not covered in this guidance.

Any society that sets up a subsidiary company or acquires shares in a joint venture company should be referred to CTIS (Insurance).

The legislation provides for an incorporated society to set up local branches.  These will have less autonomy than the branches of registered societies.  They will be charged to tax as part of the incorporated society, not as separate entities.  Any repayments due to a branch will be channelled through the central body of the incorporated society.

CTIS (Insurance) can advise further.