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HMRC internal manual

Company Taxation Manual

Particular bodies: housing associations: management co-operatives

 Management co-operatives are a type of housing association (CTM40405) which enables tenants of local authorities to participate in managing their housing accommodation. Such management co-operatives may acquire a lease from the local authority and sub-let the houses to members, or they may merely manage the houses on behalf of the local authority which remains the landlord of the members. There are no special tax reliefs for such co-operatives and they are taxed in the normal way.  Exactly how a management co-operative will be taxed will depend on what its activities are.

Where a co-operative does not acquire a lease or other interest in land the question is whether the management service it provides to the local council falls within trading income. Like other housing associations, management co-operatives are normally ‘registered societies’ in Great Britain, formerly industrial and provident societies, see CTM40505. One of the conditions for registration is that a society must not trade for profit.  There are similar prohibitions in the statute relating to housing associations. These rules are not decisive and the question is what the society actually does as a matter of fact. A  copy of the agreement between the local authority and the co-operative should be obtained and examined before reaching a decision.  If the co-operative is not a ‘registered society’ (see above) a copy of the deed setting up any trust should be examined.

In general, the management of a co-operative activity is unlikely to amount to the carrying on of a trade. This is because the agreement between a management co-operative and a local authority usually provides that the local authority re-imburses the co-operative’s expenses.  Although a surplus may arise in any given accounting period, this is likely to be the result of timing differences rather than a genuine profit from trading activity.  Where the facts in a particular case support this view, no tax liability will arise on the management activity. Liability to CT is therefore only likely to arise on investment income and chargeable gains.