CTM40530 | 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 in the hands of the recipient and is part of their total income. It should either be coded out through the PAYE tax code or included on a 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 this is taxable in the hands of the member depends on the nature of the transaction from which the dividend originates 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 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 transactions with a member, for example in an agricultural co-operative where a farmer member is supplying vegetables or other produce to the co-operative the dividend will be a trading receipt of the member and should be included in trading income accordingly.