Mutual Trading Status
&
Dormant Tax Status
HMRC & Guidance
On Friday November 5th, FC United of
Manchester were informed by HMRC that the
club's Community Share Scheme - to finance
the building of a stadium for the club and the
community of East Manchester - had
received "advance assurance" that it
qualifies for the Enterprise Investment
Scheme (EIS).
“Withdrawable Shares are not
eligible for EIS due to Income
Tax Act 2007, Section 173,
subsection 2b.”
SCEC Division, HMRC, October 2010
• Withdrawable shares can be eligible for EIS if
both of the following apply:
• The shares must be ‘at full risk’
• Investors need to leave the money invested for
at least three years
Corporation Tax
• Unincorporated associations as well as
corporate bodies pay corporation tax on their
profits
• Tax applies to both profits and chargeable gains
• There are exemptions from these taxes for some
organisations - if they meet the criteria
• Mutual Trading Status
(MTS)
- Refers to the business of a co-operative that
only trades with its members
- Stops members being taxed twice (Corporation
Tax and Income Tax)
- Profits are taxed, either at the time or at some
point in the future
• Mutual Trading Status
- HMRC Mutual Trading Status has been granted on the
basis:
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Co-operative trades as agent, not principal
Income must be derived from members
Payment from income confined to members
No interest paid on shares or loans
Granted on a case-by-case basis
• Dormant Tax Status
- New concession, HMRC ruling in relation to
community owned shops. Dormant tax status has been
granted on the basis:
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Organisation is not-for-private-profit
Incorporated as an Industrial & Provident Society
What their purpose is
Their use of any profit / surplus
Granted on a case-by-case basis
• Co-operatives
Surplus distributed to members in form of dividend
- then HMRC want income tax from member, then corporation tax
on profit remaining
• Co-operatives with MTS
Retained profit is not subject to corporation tax, surplus distributed
to members are subject to income tax
• Society with ‘Dormant Tax’ Status
Don’t distribute profits and can be exempt from corporation tax