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SA: co-op credit union 'dividends' = interest?

Practical Issues
gpadsa
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SA: co-op credit union 'dividends' = interest?

#499282

Postby gpadsa » May 8th, 2022, 2:15 pm

(still a LF noob so no urls in my query below sorry)

I'm doing a SA for the first time (21-2 year) and have got side tracked by some minutiae

HMRC says:
Tax on savings interest
Your [personal] allowance applies to interest from: [...]
- savings and credit union accounts

Co-op credit union says:
"All savings held in the credit union attract a dividend. The dividend rate is paid based on the credit union’s financial performance and market conditions. It is not agreed in advance, but proposed and voted on at the AGM every January. In 2021, the credit union paid 0.25% and in 2020 paid 1% and we always aim to pay as much as we can reasonably afford to."

Do co-op credit union 'dividends' = interest, in the eyes of HMRC? Or are credit union 'dividends' equivalent to the dividends from listed & traded company/ETF shares

googling turns up conflicting answers & nothing in HMRC customer forum, I'm awaiting a response from co-op and thought I'd seek the collective wisdom of LF

The amount is tiny but I'd still prefer to get it in the correct part of my 1st SA

Thanks,
Gpadsa

Itsallaguess
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Re: SA: co-op credit union 'dividends' = interest?

#499286

Postby Itsallaguess » May 8th, 2022, 2:54 pm

gpadsa wrote:
Do co-op credit union 'dividends' = interest, in the eyes of HMRC?

Or are credit union 'dividends' equivalent to the dividends from listed & traded company/ETF shares?


There's some information here from the UK Government taxation manual that says you should treat it as interest -

CTM40165 - Particular bodies: credit unions: taxation of members

Payment of share or loan interest


Share or loan interest (including dividends) is normally paid or credited to the shareholders (members) in a credit union without deduction of tax.

It is chargeable on the shareholders as interest.


https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm40165

That's also confirmed by this UK tax site -

Can you tell me more about credit unions?

returns on credit union savings may be by way of a ‘dividend’ or interest.

Both types are treated as interest income for tax purposes despite the first being called a ‘dividend’.

Credit unions do not have to deduct any tax at source from savings income. Credit union savings income falls within the PSA.


https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/savings-and-tax#toc-can-you-tell-me-more-about-credit-unions-

Cheers,

Itsallaguess

gpadsa
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Re: SA: co-op credit union 'dividends' = interest?

#499303

Postby gpadsa » May 8th, 2022, 3:54 pm

It is chargeable on the shareholders as interest.


Great, thanks very much!

Gpadsa

gpadsa
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Re: SA: co-op credit union 'dividends' = interest?

#501846

Postby gpadsa » May 20th, 2022, 10:16 pm

Co-op credit union responded as follows to my query:
"Hi [Gpadsa], no tax is deducted from your dividend from us. I can see you earned [miniscule amount] in dividends this past year and the government exempts the first £1,000 of annual interest income from being subject to tax. Hope that helps."

It implies 'co-op credit union dividends' = 'interest' although it does not state it explicitly - so their response 'approximately' helped.

Anyway I already knew the answer faster and in more detail from Itsallaguess' earlier response here in TLF.

Interesting co-op assumptions about anyone who interacts with a credit union:
- must have less than £1k pa interest income
- must not be in higher-rate income tax band.

Gpadsa


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