Glossary of key terms
Amortisation – Amortisation is another word for depreciation. When costs other than tangible fixed assets are depreciated it is usually referred to as amortisation – for example of intangible fixed assets or loan arrangement fees.
Annual returns – All societies must file ‘annual returns’ to the FCA within seven months of the society’s year end. The annual returns comprise a form and submission of annual accounts.
Assets – Assets are any money, equipment, buildings, stock belonging to the society or any payments owed to the society.
Capital grants – Capital grants are money gifted to an organisation to purchase assets such as buildings, land, equipment etc.
Charities SORP – The Charities Statement of Recommended Practice (SORP) describes how charities are expected to prepare their accounts in line with the Financial Reporting Standards. The Information Sheet published by Co-operatives UK has been developed alongside the SORP-making body and acts as reference.
Community Shares Practitioner - Community Shares Practitioners are accredited by the Community Shares Unit to provide guidance and advice on community share offers and licenced to award the Community Shares Standard Mark.
Community Shares Standard Mark – The Community Shares Standard Mark is awarded to community shares offers that meet national standards of best practice, ensuring offers are clear, honest and transparent.
Compounding interest- Compounding interest is interest that is calculated based on the original investment and any accumulated interest paid on that investment. Any societies that choose to pay interest in additional share capital or by ‘adding to their members’ share accounts’ need to consider the impact of compounding interest.
Condition of registration – A society must continue to fulfil its ‘conditions of registration’ with the Financial Conduct Authority (FCA). If they fail to do so, they can become ‘deregistered’ as a Society, become an unincorporated association, and lose their limited liability status. This may have personal consequences for any directors of the Society who may become personally liable for any debts/liabilities of the Society.
Creditors – Creditors refers to any people or organisations that are owed money by the society, or the amounts owed.
Current assets – Current assets are any assets that can be more easily converted into cash in the next accounting period, such as money owed to the society, stock, short term investments etc.
Depreciation – Depreciation is a way spreading the cost of a fixed asset over the period in which it is used.
Dividends – Of the three society types, only co-operative societies can pay dividends to members. This is generally worked out based on an equitable formula and is a legitimate business expense. Net profit and corporation tax are worked out after the payment of dividends. Further guidance on dividends can be found in the Community Shares Handbook, Section 6.2 ‘Distributions in co-operative societies’.
Fixed assets – Fixed assets are any assets that cannot easily have their value converted into cash, such as premises, IT equipment, manufacturing equipment etc.
Housing SORP – The Housing SORP (Statement of Recommended Practice) applies to all registered social housing providers in the UK, including societies, and provides essential guidance on, and interpretation of, accounting standards for the sector.
Impairment – Impairment is a reduction in the value of any assets, including share capital invested in other entities.
Interest (on share capital) – All types of societies can pay interest on members’ share capital. According to the guidance, the maximum rate of interest paid has to be declared in advance and be at the lowest rate sufficient to obtain the capital. Further guidance on interest can be found in the Community Shares Handbook, Section 6.1 ‘Interest on share capital’.
Liabilities – Liabilities are any money owed by the society, either as debt or purchases.
Liquidity – Liquidity generally refers to the availability of cash to pay suppliers, bills, wages etc. as they fall due. It can also refer to the ease with which an asset can be converted to cash.
Nominal value – the ‘nominal value’ of withdrawable share capital is the price paid for the shares at the time of investment. Community shares cannot increase in value and the majority of the time, shares will stay at their ‘nominal value’ when they are withdrawn. In rare instances, if the society is facing financial difficulties, shares can decrease in value, so it might be that the value of the share is reduced below the ‘nominal value’ of the share at the point of purchase.
Over-capitalisation – A society is over-capitalised if members have invested more money than the society needs for its business activities. This can happen if a society raises more capital than it needs, or has reducing capital requirements. This can impact on interest rates if offered. More guidance on over-capitalisation is available in the Community Shares Handbook, Section 2.3, ‘Liquidity of withdrawable shares’.
Recourse to shares - A member will have ‘recourse to their shares’ if the society is able to enable withdrawal their share capital without risk of making the society insolvent. More detail on this is available in the Community Shares Handbook, Section 2.3 ‘Liquidity of withdrawable shares’.
Registered Provider – Providers of social housing registered with the Regulator of Social Housing are considered ‘Registered Providers’, this includes societies.
Revenue grants – Revenue grants are money gifted to an organisation to fund revenue expenses such as staff costs, external consultancy, research, marketing spend etc.
Secretary – All societies are required by law to appoint a secretary who is the main person responsible in law for ensuring certain key functions are carried out. The whole board may still be held responsible if these functions are not actioned. More information in Co-operatives UK’s ‘The Essential Society Secretary’ guide.
SIC code – A ‘Standard Industrial Classification’ code is a structured system in the UK to classify companies or societies main business activities. It is generally a five digit numeric code followed by a description of the activity. Businesses can choose up to four relevant SIC codes.
Smaller societies – A ‘small entity’ as defined by FRS102 (S382 CA2006) must meet at least 2 of the following conditions:
- annual turnover must be not more than £10.2 million
- the balance sheet total must be not more than £5.1 million
- the average number of employees must be not more than 50
Solvency – Solvency is the ability of the business to meet any long term debts or financial obligations, often calculated by looking at whether the value of a society’s assets exceeds its liabilities.
Subsidiary – A subsidiary is any legal entity which is controlled by another legal entity. Subsidiaries are used regularly by charities who require a separate legal entity to conduct certain trading activities. More information on community shares, societies and subsidiaries can be found in the Community Shares Handbook, Section 2.8.2 ‘Wholly-owned and controlled subsidiaries’.
Investment tax relief – Investment tax relief is sometimes used as a financial incentive encourage people to invest in community shares and allows individual investors (not institutions or businesses) to claim back a percentage of their investment against their income tax liability. There are different conditions attached to different types of tax relief. More guidance is available in the Community Shares Handbook, Section 8.3-8.4, ‘Tax treatment’.
Turnover – Turnover is the amount of money received for all sales after removing any sales tax (e.g. VAT), but before deducting the cost of those sales. Also referred to as ‘revenue’.