CTM40465 - Particular bodies: housing associations: management co-operatives

Management co-operatives are a type of housing association ( CTM40405) which enable tenants of local authorities to participate in managing the houses in which they live. Such management co-operatives may acquire a lease from the local authority and sub-let the houses to members, or they may merely manage the houses on behalf of the local authority, which remains the landlord of the members. There are no special tax reliefs for such co-operatives and they should therefore be taxed in the normal way. Exactly how a management co-operative will be taxed will depend on what its activities are.

Where a co-operative does not acquire a lease or other interest in land the question which arises is whether the management service it provides to the local council falls within Case I of Schedule D. Like other housing associations, management co-operatives are normally registered under the Industrial & Provident Societies Act 1965. One of the conditions for registration is that a society shall not trade for profit (see CTM40505). There are similar prohibitions in the statute relating to housing associations. These rules are not regarded as conclusive and, as with any other situation, you need to have regard to what the society actually does before reaching any firm decision. Before offering any opinion on the tax status of a co-operative you should obtain a copy of the agreement between the local authority and the co-operative and examine it carefully. If the co-operative is not a registered industrial and provident society you should also obtain a copy of the deed setting up the trust.

In general, the management of a co-operative activity does not amount to the carrying on of a trade. This is because the agreement between a management co-operative and a local authority usually provides that the local authority re-imburses the co-operative's expenses. Although a surplus may arise in any given accounting period, this is likely to be the result of timing differences rather than a genuine profit from trading activities. Where the facts in a particular case support this view, no tax liability will arise on the management activity. Liability to CT is therefore only likely to arise on investment income and chargeable gains.