The case of Ayrshire Employers' Mutual Insurance Association Ltd v CIR 27TC331, confirmed that no tax had to be paid on surpluses from mutual trading. This is as a result of the principle that 'a man cannot trade with himself'. If a group of people join together for a common purpose their transactions with the umbrella body can be seen as mutual if:
and
If a body is incorporated, its legal framework will be set out
in its Memorandum and Articles of Association. If not, you will
find it in the 'rules', or whatever paper sets out its
constitution. There may also be agreements, contracts for services,
for example, which deal with the transactions between the body and
its members.
The bodies are only free from tax on their trading
activities. They still have to pay tax on all their other income
and gains, on income from property or bank interest, for example,
without relief for management expenses.
There is no relief for losses made on mutual trading. There
are no capital allowances available for capital expenditure.
Insurance companies are covered in
CTM40600.
