A society registered with the Financial Conduct Authority, owned by the members. The society is established for the benefit of the community and not of its members, who do not need to be (though they can be) consumers or workers. Each member has one vote at the AGM, even if they have more than one share. Unlike with a company, the shares are not transferable and can only ever be refunded at par (usually £1). The share can never be worth more than what was paid for them. A CBS must be established with a social or environmental objective, and has a non-profit constitution and an asset lock. The differences between a charitable CBS and a non-charitable CBS are:
- A charitable CBS has a stronger asset lock
- A charitable CBS has asked HMRC to recognise it as charitable and HMRC has agreed
A charitable CBS is not registered with the Charity Commission as it is exempt from registration. HMRC will agree to charitable recognition and the related tax advantages if the objects are charitable, the asset lock is correct and any interest paid to members is low and not dependent on the surplus generated.
Must prepare accounts in accordance with:
- Co-operative and Community Benefit Societies Act 2014
- FRS102 (section 1A if applicable)
- Charities SORP (FRS102)
- Exempt from corporation tax on charitable trading, capital gains, and investment income
- Can pay interest on shares. The interest rate must be modest.
- Mandatory Rates Relief (80% business rates reduction)
- Charitable VAT exemptions and zero-rating reliefs apply
- Does not normally need to file a corporation tax return
- Non-profit aim is its main objective, and aims should be consistent with the 6 Co-operative Principles
- Limited liability
- Exempt from the Financial Services and Markets Act 2000, so can advertise for loan or share investment from the public (eg in a Community Share Offer)
- Investment reliefs (SEIS, EIS, and SITR) may be available
- Favourable tax treatment of interest payments
- VAT, Business Rates and Corporation Tax: see above
- Not listed at Companies House. This creates problems for credit reference agencies and it is often not possible to get a decent credit rating.
- More expensive to create than a limited company (or a CIO or charitable company)
- Must be audited if income is over £250k.
- Preparation of accounts and trustees annual report is more complex, time consuming and expensive, due to the application of the Charities SORP.
- Accounts preparation
- Possible submission of Corporation Tax return CT600 with charity pages CT600E
- Payroll (if employing people)
- VAT advice, if necessary
- Book-keeping, if required
- Reporting account’s report under Section 85 Co-operative and Community Benefit Societies Act 2014, or audit, as necessary