CTM40155 - Particular bodies: credit unions : introduction

A credit union is a form of financial co-operative, owned and run by its members.

Credit unions provide basic savings and loan service. They are often, but not exclusively, targeted at those on modest incomes who, for a variety of reasons, may have no dealings with the commercial banking sector.

The objects of credit unions, as defined by the Credit Unions Act 1979, are:

• the promotion of thrift among the members by the accumulation of savings,
• the creation of sources of credit for the benefit of the members at a fair and reasonable rate of interest,
• the use and control of the members' savings for their mutual benefit,
• the training and education of the members in the wise use of money and in the management of their financial affairs.

Only individuals can be members of a credit union. A condition of admission to membership is that the individual must, with the other members, satisfy one of a number of 'common bond' qualifications. The qualification concerned will be stated in the rules of the society and may be one (or a combination) of four main types:

• living and/or working in a particular geographical area (by far the most common),
• being a member of, or having an association with, a particular organisation,
• working for a common employer,
• following a particular occupation.

Members save by subscribing for redeemable but non-transferable £1 shares in the credit union. This capital, any additional borrowing raised by the union from other sources, and any additional funds generated by its investment, provides a common fund out of which loans can be made to members at reasonable rates of interest. A ‘dividend’ on the shares may be paid to members out of the surplus that results from lending at interest.

As a general rule, a credit union in Great Britain is not allowed to accept deposits, other than by way of subscriptions for its shares. However, it is allowed to accept sums on deposit, up to a specified total, from persons under 16 years of age.

A number of deregulatory measures introduced in Great Britain in 2001 and 2002 have removed earlier restrictions on the maximum membership of any single credit union and have relaxed rules on the length and the amount of loan which can be made to members and on the sources from which credit unions can borrow additional funding.

In Great Britain, the Credit Unions Act 1979 requires credit unions to be registered as such under the Industrial and Provident Societies Act 1965, and lays down the objects, conditions and rules which must be complied with for registration purposes. Since December 2001, registration and regulation of credit unions in Great Britain are the responsibility of the Financial Services Authority.

In Northern Ireland, a framework already existed prior to 1979 by virtue of the Industrial and Provident Societies Act (Northern Ireland) 1969 (which lays down similar provisions). In Northern Ireland, cases can be registered under either that act or the Credit Unions (Northern Ireland) Order 1985. The registration and regulation of credit unions in Northern Ireland is the responsibility of the Registry of Credit Unions and Industrial and Provident Societies.

As industrial and provident societies, credit unions are within the definition of company for tax purposes at ICTA88/S832 (1) and are within the charge to CT. For more on the taxation of credit unions, see CTM40160 and CTM40165. Although they can merge with other credit unions, they cannot hold subsidiaries and cannot convert into or merge with Companies Act companies.

Particulars of the registration of a credit union are notified to local tax offices by Centre for Revenue Intelligence, (or equivalent in Scotland or Northern Ireland).

Computer records for credit unions should be set up in accordance with AC1000.

Head Office responsibility for credit unions lies with CTIAA (Technical).