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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Particular bodies: registered societies: carrying on trade - dividends etc

CTA09/S132

CTA09/S132 provides for a deduction for dividends etc in computing trading income of a registered ociety.  It applies where

  • the society sells only to members, or
  • the number of shares in the society is not limited by rule or practice.

The sums which fall within this category are discounts, rebates, dividends or bonuses granted to members or other recipients in respect of transactions with the society which are taken into account in computing its trading profits and which reflect the amounts of those transactions. In relation to the recipient it is a reduction of the cost of goods bought from the society or an increase in the price obtained for goods sold to the society.

It applies equally to loyalty or reward card-type schemes, where points are earned for each transaction, as it does to the traditional ‘divi’.

The amount to be deducted is the full amount of dividend, bonus etc granted, whether or not the full amount is immediately released to members.  Thus a bonus satisfied in whole or in part by the allotment of paid-up shares in the capital of the society or a ‘deferred bonus’, that is, a bonus treated as an interest-bearing loan repayable at some future date, becomes deductible as soon as it is granted - see Staffordshire Egg Producers Ltd v Spencer (1963) 41TC131.

The sums deductible are in strictness the amounts granted in respect of the transactions of the accounting period.  The amounts shown by the society’s accounts as having been paid or credited in the accounting period may be used, even though these may in some cases include late payments of ‘divi’ for earlier periods.

In the common case of a society which makes an ‘interim’ distribution at the end of the first three months of a half-year, and a ‘final’ distribution after making up its accounts for the half year, the ‘interim divi’  added to the ‘final divi’ may be taken as the appropriate deduction for the half-year.

For the treatment of the ‘divi’ in the hands of the recipient see CTM40530.

Worker Co-operatives

A bonus in respect of the services of a worker member is not within the definition of a bonus in respect of transactions with the society, i.e. it will not fall within CTA09/S132. Such a bonus will usually be employment income and PAYE/NIC should be applied to it as normal.