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Cooperatives and the UK Tax System
Cooperatives are legal entities that are owned and controlled by their members. They are often formed to provide goods or services to their members at a reduced cost. In the UK, cooperatives are subject to a different tax regime than other types of businesses.
Taxation of Cooperatives
- Cooperatives are subject to corporation tax on their profits.
- The corporation tax rate for cooperatives is 20%.
- Cooperatives can also be subject to VAT.
In addition to these taxes, cooperatives may also be subject to other taxes, such as business rates and payroll taxes.
Tax Reliefs for Cooperatives
The UK government offers a number of tax reliefs to cooperatives. These reliefs include:
| Relief | Description |
|---|---|
| Industrial and provident societies (IPS) relief | This relief exempts cooperatives from corporation tax on their profits if they meet certain conditions. |
| Co-operative and community benefit societies (CCBS) relief | This relief provides a reduced rate of corporation tax for cooperatives that meet certain conditions. |
| Community investment tax relief (CITR) | This relief provides tax relief for individuals who invest in cooperatives. |
Conclusion
The UK tax system is complex and can be difficult to understand. However, cooperatives can benefit from a number of tax reliefs that can help them to reduce their tax liability.
Types of Taxes Cooperatives Pay
Cooperatives, like other businesses, are required to pay various types of taxes in the United Kingdom. These taxes include:
- Corporation tax
- Value-added tax (VAT)
- Employer’s National Insurance contributions (NICs)
- Employee’s NICs
- Business rates
- Stamp duty
Corporation Tax
Corporation tax is a tax on the profits of companies. Cooperatives are charged corporation tax at the same rate as other companies, which is currently 19%.
Value-Added Tax (VAT)
VAT is a consumption tax that is charged on the sale of goods and services. Cooperatives are required to register for VAT if their taxable turnover exceeds £85,000. Once registered, they must charge VAT on all of their sales. They can then reclaim the VAT that they have paid on their purchases.
Employer’s National Insurance Contributions (NICs)
Employer’s NICs are a tax on the wages and salaries that employers pay their employees. Cooperatives are required to pay Employer’s NICs on all of the wages and salaries that they pay to their employees. The current rate of Employer’s NICs is 13.8%.
Employee’s National Insurance Contributions (NICs)
Employee’s NICs are a tax that is deducted from the wages and salaries of employees. Cooperatives are required to deduct Employee’s NICs from all of the wages and salaries that they pay to their employees. The current rate of Employee’s NICs is 12%.
Business Rates
Business rates are a tax on the occupation of commercial property. Cooperatives are required to pay business rates on all of the commercial property that they occupy. The amount of business rates that a cooperative has to pay is based on the size and location of its property.
Stamp Duty
Stamp duty is a tax on the transfer of property. Cooperatives are required to pay stamp duty when they purchase or sell property. The amount of stamp duty that a cooperative has to pay is based on the value of the property.
Table Summarizing the Types of Taxes Cooperatives Pay
| Tax | Description | Rate |
|---|---|---|
| Corporation tax | Tax on the profits of companies | 19% |
| Value-added tax (VAT) | Consumption tax on the sale of goods and services | 20% |
| Employer’s National Insurance contributions (NICs) | Tax on the wages and salaries that employers pay their employees | 13.8% |
| Employee’s National Insurance contributions (NICs) | Tax that is deducted from the wages and salaries of employees | 12% |
| Business rates | Tax on the occupation of commercial property | Varies |
| Stamp duty | Tax on the transfer of property | Varies |
Tax Obligations of Cooperatives in the UK
Cooperatives in the United Kingdom are generally subject to corporation tax, but they may be eligible for certain tax exemptions or rebates.
One of the key tax exemptions for cooperatives is the Industrial and Provident Societies (IPS) exemption. To qualify for this exemption, a cooperative must meet certain criteria, including:
- Being registered as a cooperative society under the Co-operative and Community Benefit Societies Act 2014.
- Having a primary purpose of providing goods or services to its members.
- Distributing profits to its members in proportion to their participation in the society.
Cooperatives that meet these criteria are exempt from corporation tax on their income from trading activities. However, they are still liable to pay income tax and capital gains tax on their other income.
In addition to the IPS exemption, cooperatives may also be eligible for a variety of other tax exemptions or rebates. These include:
- The small profits exemption, which exempts cooperatives with annual profits of less than £30,000 from corporation tax.
- The reinvestment relief, which allows cooperatives to claim a tax deduction for investments in qualifying assets.
- The co-operative dividend tax credit, which allows cooperatives to pay dividends to their members with a tax credit attached.
- The co-operative share interest exemption, which exempts cooperatives from paying corporation tax on the interest paid on their shares.
The following table summarizes the key tax exemptions and rebates available to cooperatives in the UK:
| Exemption or Rebate | Criteria |
|---|---|
| Industrial and Provident Societies (IPS) exemption | Registered as a cooperative society, providing goods or services to members, and distributing profits in proportion to participation |
| Small profits exemption | Annual profits of less than £30,000 |
| Reinvestment relief | Investments in qualifying assets |
| Co-operative dividend tax credit | Dividends paid to members with a tax credit attached |
| Co-operative share interest exemption | Interest paid on shares |
Cooperatives that are considering claiming any of these exemptions or rebates should consult with a tax advisor to ensure that they meet the necessary criteria.
Do Donatives Pay Tax?
A donative is a gift of money or property made to a charity or other non-profit organization. Donatives are typically tax-deductible, meaning that the donor can subtract the amount of the gift from their taxable income when they file their taxes.
Tax Compliance for Donatives
There are a few important tax compliance rules that donors need to be aware of when making donatives:
- The donor must itemize their deductions on their tax return in order to claim a deduction for a donative. The standard deduction is a specific amount that you can deduct from your taxable income before you calculate your taxes. If you itemize your deductions, you can deduct certain expenses that are more than the standard deduction.
- The donor must have a receipt for the donative. The receipt must show the name of the charity, the date of the gift, and the amount of the gift.
- The donor must keep a record of all donatives made throughout the year. This record should include the name of the charity, the date of the gift, the amount of the gift, and the type of property donated.
Donors who fail to comply with these rules may not be able to claim a deduction for their donatives.
Table of Donative Tax Deductions
The following table provides a summary of the tax implications of donatives made to different types of organizations:
| Type of Organization | Tax Deduction |
|---|---|
| Public charities | 100% of the amount of the gift is deductible up to 50% of the donor’s adjusted gross income. |
| Private foundations | 30% of the amount of the gift is deductible up to 20% of the donor’s adjusted gross income. |
| Other non-profit organizations | No deduction is allowed. |
Well, there you have it, folks! I hope this article has answered all your burning questions about whether or not cooperatives pay tax in the UK. Remember, if you’re starting a co-op, it’s essential to understand the tax implications to ensure you’re operating legally and efficiently. Thanks for reading, and be sure to visit our website again soon for more informative content like this!