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HMRC internal manual

Company Taxation Manual

Particular bodies: registered societies: payment of share and loan interest and other payments: treatment of recipient

A member may be in receipt of various payments from a registered society, all of which are paid gross by the society.

Interest

A society may pay interest in respect of any mortgage, loan, loan stock or deposit, This is a receipt of gross interest for the recipient and is part of his total income. It should either be coded out through his PAYE tax code or included on his tax return as untaxed income as appropriate.

Any interest, dividend, bonus or other sum payable to a shareholder of such a society by reference to the amount of the shareholder’s holding in the share capital of the society is also treated as a receipt of gross interest in the hands of the recipient (ITTOIA05/S379) and the member  is responsible for ensuring that tax is paid on it as above.

Some members  who have low incomes will have no tax to pay.

Other payments

A registered society, in particular a co-operative society, may also pay a discount, bonus, dividend or rebate to its members based on the level of their transactions with the society. Whether or not this is taxable in the hands of the member depends on the nature of the transaction on which the dividend is based and the nature of the relationship between the member and the society.

For example in a retail co-operative where the member is simply buying retail goods from the company, then any dividend based on the amount of purchases made is effectively a discount on the purchase price of the goods and as such is not taxable income in the hands of the member.

However where the dividend is based on trade transaction s with a member, for example  in an agricultural co-operative where a farmer member is supplying say vegetables to the co-operative, then the dividend is a trading receipt of the member and should be included in his trading income.