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Labour accused of tax hypocrisy – taxation of membership organisations

The press recently revealed that Labour paid no corporation tax last year despite having a surplus of £4.3m. By contrast, the Conservatives had a surplus of £1m and paid £238,000 in tax.

Conservative MP Chris Philp said: "The hypocrisy of the Labour party is extraordinary."

Labour responded by saying: "Corporation tax is paid on taxable profits and the party made no taxable profits."

That does though beg the question as to how membership organisations are actually taxed.

Well they will normally be taxed on any investment income they receive, such as bank interest received (though there are exemptions available on small sums for some organisations.)

The bigger element though is membership subscriptions and whether or not this income is trading income. It is usually trading if the organisation is receiving the subscriptions in return for goods and services which it is providing with a view to a profit. However, this is often not the case with membership organisations, the subscriptions tend to be more in the nature of donations made to support the organisation. If the membership subscriptions are in the nature of donations they will not usually be taxable.

So what about trading income? Well this is usually taxable but will not be to the extent that it is “mutually” trading. For an organisation to be mutually trading a number of conditions need to be met, especially:-

  • The organisation has to be trading with its own members,
  • the organisation needs to be under the control of its members,
  • where any surplus arises it cannot be distributable except to its members on a just and fair basis taking into account their contributions.

It is not unusual for membership organisations to have tax exempt income from mutual trading and taxable non-mutual trading profits. On that basis, if the Labour Party’s £4.3m surplus arose from its members one would not expect it to be taxable.

 

 

Date: 9th August, 2016
Author: David Hadley

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