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Mutual Trading Status & Dormant Tax Status

Mutual Trading Status & Dormant Tax Status. HMRC & Guidance.

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Mutual Trading Status & Dormant Tax Status

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  1. Mutual Trading Status& Dormant Tax Status

  2. 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).

  3. “Withdrawable Shares are not eligible for EIS due to Income Tax Act 2007, Section 173, subsection 2b.” SCEC Division, HMRC, October 2010

  4. 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

  5. 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

  6. 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

  7. Mutual Trading Status- HMRC Mutual Trading Status has been granted on the basis: • 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

  8. Dormant Tax Status- New concession, HMRC ruling in relation to community owned shops. Dormant tax status has been granted on the basis: • 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

  9. Co-operativesSurplus distributed to members in form of dividend- then HMRC want income tax from member, then corporation tax on profit remaining • Co-operatives with MTSRetained profit is not subject to corporation tax, surplus distributed to members are subject to income tax • Society with ‘Dormant Tax’ StatusDon’t distribute profits and can be exempt from corporation tax

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