What does section 458 of TIOPA 2010 do for co-operative and community benefit societies?

Section 458 excludes certain deemed interest payments made by co-operative and community benefit societies from the corporate interest restriction rules. Where amounts only qualify as tax-interest expense or income because of the deeming rule in section 499 of CTA 2009, they are treated as falling outside the restriction framework entirely, preserving the society's tax deduction.

Why are co-operative society payments deemed as interest under section 499 of CTA 2009?

Section 499 of CTA 2009 treats certain sums paid by co-operative and community benefit societies, such as dividends on share capital, as loan relationship interest. This deeming rule exists because these payments function as distributions of surplus to members rather than genuine financing costs, yet the legislation allows a tax deduction by classifying them as interest.

How does section 458 interact with the corporate interest restriction calculation?

Section 458 provides that if an amount only counts as a tax-interest expense or tax-interest income amount because of the co-operative deeming rule in section 499 of CTA 2009, it is ignored for the corporate interest restriction calculation. This means such amounts cannot be restricted or reactivated under the Part 10 TIOPA 2010 rules.

Can a community benefit society's share dividends be restricted under the corporate interest restriction?

No. Although share dividends paid by a community benefit society are deemed to be loan relationship interest under section 499 of CTA 2009, section 458 of TIOPA 2010 excludes them from the corporate interest restriction. The dividends are treated as not being tax-interest expense amounts, so the society's deduction remains unaffected by the restriction rules.

Taxation (International and Other Provisions) Act 2010 section 458

Co-operative and community benefit societies etc.

Section 458 excludes certain payments made by co-operative and community benefit societies from the corporate interest restriction rules, where those payments are only treated as loan relationship interest because of a special deeming provision in the Corporation Tax Act 2009.

Certain sums paid by co-operative and community benefit societies, and UK agricultural or fishing co-operatives, are treated as interest under loan relationships by section 499 of CTA 2009, even though they are not true interest payments.
Without this exclusion, these deemed interest amounts would be caught by the corporate interest restriction rules as tax-interest expense or tax-interest income amounts.
Section 458 provides that where an amount only qualifies as a tax-interest amount because of the co-operative society deeming rule, it is treated as not being a tax-interest expense or tax-interest income amount.
This ensures that co-operative and community benefit societies are not penalised under the interest restriction rules for payments that are not genuine financing costs.

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