Corporation Tax Act 2009 section 397

Credit unions

Section 397 provides that credits and debits arising on loan relationships between a credit union and its own members are excluded from the loan relationships rules, subject to a compliance condition regarding tax returns.

• When a credit union member is the borrower, no credit (income) is brought into account under the loan relationships rules for that loan
• When a credit union member is the lender (i.e. has deposited money with the union), no debit (expense) is brought into account under the loan relationships rules for that deposit
• The exclusion of credits from member loans is lost if the credit union fails to file its required return under section 887(2) of ITA 2007 within 3 months of the end of the accounting period, or within any longer period allowed by HMRC
• The practical effect is that interest and other amounts arising on loans to and deposits from members are kept outside the corporation tax loan relationships regime, provided the credit union meets its filing obligations