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Supported by The Co‑operative Bank
How to finance your platform co‑op start-up

Tax and co‑ops

Tax treatment of co‑ops

Co‑ops have to pay Corporation tax, VAT (above a certain threshold), Capital Gains tax, Stamp Duty tax as well as Income tax of their employees via PAYE.

LLPs do not pay Corporation Tax or Income tax of partners via PAYE, instead partners are taxed on their individual income which they declare through their self-assessment. 

Co‑ops set up as Charities:

  • Are exempt from Corporation tax and Capital Gains tax, as long as profits are used to achieve the charity’s purpose. 
  • Are exempt from paying Stamp Duty Land tax on properties purchased by them.
  • Have a 80% business rate relief for properties that are completely or mainly used for charitable purposes.
  • Are not exempt from paying VAT, however certain goods and services provided or bought by a charity may be exempt 
  • May claim back some of their donors income tax using Gift Aid.

Tax treatment of investments in co‑ops

Investors pay tax on the interest they receive from their equity. This applies to both individuals and organisations, though individuals have a personal allowance based on their overall income.

In the case of charities, funders can claim tax reliefs in the form of Income Tax relief for individuals and Corporation Tax relief for organisations.

There are also a variety of schemes promoted by the UK government to support investment in small and medium companies and social enterprises. Schemes offer tax reliefs and loss protection to individuals and organisations who invest in early stage enterprises, creating an effective incentive to support businesses such as platform co‑ops. 

Tax reliefs come in the form of Income Tax relief and Capital Gains Tax relief. Income Tax reliefs can be claimed only by people who are not directly connected to the business. This is not a condition for Capital Gains Tax relief. 

To apply an organisation must:

  • Be established in the UK.
  • Carry out a trade that qualifies for the scheme and plan to spend the investment on the qualifying trade.
  • Not be listed on a recognised stock exchange at the time of investment.
  • Not be controlled by another company.

For each scheme there are also restrictions on the type of shares that can be issued and the type of activities that the funds for the investment can be used for. Below are summarised some of the main characteristics, but for further information please visit the UK government website.

Seed Enterprise Investment Scheme (SEIS) 

Your platform co‑op may qualify for SEIS if it is less than 2 years old, and at the time of investment has no more than £200k in gross assets and less than 25 employees. The maximum amount an organisation can raise under SEIS is £150k. There is no lower limit.

The maximum amount an investor can claim under SEIS is :

  • £100,000 on 50% of their investment in Income Tax relief.
  • £50,000 on 50% on their investment in Capital Gains Tax relief on assets sold in the same year.

When an investor chooses to divest their shares:

  • If they make a profit, they will not have to pay any Capital Gains Tax if they have held the shares for a minimum of 3 years.
  • If they make a loss, they can set the loss amount, less any Income Tax relief already given, against their income.

Social Investment Tax Relief (SITR)

Your platform co‑op may qualify if it is either a Community Benefit Society, Community Interest Company or a Charity and at the time of investment has no more than £5m in gross assets and fewer than 20 employees. The maximum amount an organisation can raise under SITR is £1.5m over its lifetime.

The maximum amount an individual can claim under SITR is:

  • £1 million on 30% of their investment for Income Tax relief.
  • £1 million on 100% of their investment for Capital Gains Tax relief, until they divest from the scheme, on assets sold within 3 years of the investment or one year before.

When an individual chooses to divest their shares they will not have to pay any Capital Gains Tax if they have held the shares for a minimum of 3 years.

Enterprise Investment Scheme (EIS)

Your platform co‑op may qualify for EIS if at the time of investment it has been trading for less than seven years and at the time of investment it has no more than £15 million in gross assets and less than 250 employees

The maximum amount a platform co‑op can raise under EIS in its lifetime is £12 million. There is no lower amount.

The maximum amount an individual can claim under EIS is:

  • £1 million on 30% of their investment for Income Tax relief.
  • £1 million on 100% of their investment for Capital Gains Tax relief, until they divest from the scheme, on assets sold within 3 years of the investment or one year before.

When an individual chooses to divest their shares they will not have to pay any Capital Gains Tax on profit if they have held the shares for a minimum of 3 years.