CCIA Compliance Reports - Lambeth Pound

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    14-Apr-2017
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Transcript of CCIA Compliance Reports - Lambeth Pound

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    Legal and compliance analysis of the Lambeth Pound

    Organisation: London Borough of Lambeth This guidance document describes the impact of relevant laws and regulations in the United Kingdom on the Lambeth Pound project. Legal and compliance issues with regard to the relevant in-country laws and regulations are analyzed so that future currency projects can benefit from this knowledge and avoid risks at implementation. This document is part of a wider package of legal and compliance documents that can be found on the Community Currency Knowledge Gateway at http://community-currency.info/en/find/cc-toolkits/legal-and-compliance/

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    Disclaimer

    This document only offers an overview of the legal landscape that this complementary currency operates within and nothing contained in this document should be considered legal advice.

    This report has been compiled and verified by Qoin as part of the Community Currencies in Action (CCIA) collaboration project. CCIA is a transnational partnership project designing, developing and implementing community currencies across northwest Europe. The partnership provides a rigorously tested package of support structures to facilitate the development of currency initiatives across NWE, promoting them as credible policy vehicles. Running from May 2012 to June 2015, CCIA is part-funded through the INTERREG IVB North West Europe Programme, a financial instrument of the European Unions Cohesion Policy Investing in Opportunities.

    Find out more about CCIA on our website: www.communitycurrenciesinaction.eu

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    Introduction This guidance document describes the impact of relevant laws and regulations in the United Kingdom on the Lambeth Pound project. Legal and compliance issues with regard to the relevant in-country laws and regulations are analyzed so that future currency projects can benefit from this knowledge and avoid risks at implementation. Each chapter is divided in main and sub legal topics. An explanation is given for each main and sub topic. For each legal topic a description is given about how its relevant to the Lambeth Pound currency project. Legal Topics 1. Taxation Tax authorities and regulators can consider community currencies to be a means by which individuals and companies can more easily escape the tax implications of the transactions that they engage in. It is therefore vital that any community currency seeks to mitigate these legitimate concerns by addressing the impact on VAT, Corporation tax and Income tax of individuals and companies using the scheme. For example, in the Netherlands a ruling has been obtained from the tax authorities that currency earned through social currency schemes are not taxed up to the equivalent of a maximum annual remuneration of volunteers up to 1500. However the situation varies in the different NWE countries and for some similar policies are yet to be. A further challenge is designing a calculation model which allows for computing equivalent legal tenders for currencies that are circulated on a completely different basis such as hours. To maintain the integrity of the community currency programs CCIA will do an in-depth risk analysis to understand how to mitigate the possibility of users avoiding paying all the tax due to the authorities. An initial assessment is, that social currencies (e.g. Timebanking, loyalty schemes etc.), due to their relatively limited scale in terms of individual balances and individual earnings, and spending opportunities, in general have a low risk of tax avoidance by users. For currencies in the professional/b2b mutual credit and legal backed tender, where the potential risks are higher, measures have already been implemented to verify the identity of participants when they enter the scheme. 1.1 Value Added Tax (VAT) The Lambeth Pound is classed as a credit face value voucher for tax purposes, since they are sold at face value and redeemed for real goods and services. There is no VAT due on the actual sale of the vouchers since they are sold at face value, but there is VAT due from the businesses that redeem these vouchers. When the vouchers are used/redeemed for goods and services, the value for VAT purposes is the full face value. Businesses that sell Lambeth Pound vouchers cannot claim VAT on the sale of the vouchers, because they are sold at face value. The only time that VAT could be charged on the sale of Lambeth Pound vouchers is if they were sold for a greater amount than their face value for instance, if a collectors pack was sold for a higher rate than the value of the vouchers. This would then be VAT rated. However, if the turnover of the organization is less than 77,000 per year, the business does not have to be VAT registered. If the Lambeth Pound were to sell

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    collectors packs, we would not need to charge VAT since Lambeth Council is not liable for VAT. To encourage compliance with VAT law, we notify all businesses who accept Lambeth Pounds that normal tax is due on all goods and services they sell for Lambeth Pounds. Additionally, we notify any businesses who are exchanging sterling for Lambeth Pounds as a service that they are not able to charge VAT for face-value Lambeth Pounds. Since VAT must be paid in sterling, businesses must make enough sterling (or trade back enough Lambeth Pounds into sterling) to pay for the VAT they owe to HMRC. Links to original law texts and contact details regulatory authorities relevant for this sub topic:

    - Business promotion schemes, 700/7 (2012) http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000091&propertyType=document#downloadopt 1.2 Corporation tax

    As the Lambeth Pound is a project inside Lambeth Council, it is not responsible for paying tax as a separate body, and makes no overall profit so there is no corporation tax to be paid on this demonstration. When the Lambeth Pound breaks away from Lambeth Council, it will be set up as a Community Interest Company, which will be responsible for paying tax. As a limited company a CIC is liable to corporation tax just like any other company.

    We notify all limited companies and other organisations including clubs, societies, associations and other unincorporated bodies who accept Lambeth Pounds that they must pay corporation tax on their income whether it is in Lambeth pounds or in sterling. This also applies to self-employed people and business partnerships. We inform businesses that accept Lambeth Pounds that they are responsible for the tax liability incurred in earning any income, including Lambeth Pounds. There are several relief categories that reduce the amount of corporation tax some businesses pay, but none exempt income earned in local currency. Corporation tax must be paid in sterling, and businesses must ensure that they make enough sterling (or trade enough Lambeth Pounds into sterling) to pay their corporation tax to HMRC. Links to original law texts and contact details regulatory authorities relevant for this sub topic: CTM40145 - Particular bodies: clubs: community interest companies http://www.hmrc.gov.uk/manuals/ctmanual/CTM40145.htm Indroduction to Corporation tax: http://www.hmrc.gov.uk/ct/getting-started/intro.htm

    Who is subject to Corporation Tax requirements?

    The following limited companies and unincorporated organisations are subject to Corporation Tax requirements:

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    limited companies incorporated in the UK foreign-based companies with a permanent place of business in the UK members' clubs, such as social clubs, sports clubs and holiday clubs societies, such as friendly societies and provident societies associations, such as housing associations and trade associations co-operatives other unincorporated associations groups of individuals carrying on a business that is not a partnership charities, or companies that are subsidiaries of - or wholly owned by - a

    charity NHS foundation trusts if they are carrying out significant commercial activities

    that are not part of core health care delivery, such as running a commercial laundry

    The taxable profits or surpluses of these businesses and organisations are subject to Corporation Tax requirements.

    A company or organisation subject to Corporation Tax requirements is known to HMRC for Corporation Tax purposes as being 'within the charge to Corporation Tax', 'chargeable to tax' or in 'the charge to tax'.

    1.3 Income tax Lambeth Council pays staff who work on the Lambeth Pound/CCIA programme, and is therefore responsible for paying employment tax on these workers salaries. Salary payment and employment tax payment is made in sterling. There is a scheme which allows Lambeth Council employees to opt in to earn some of their salary in Lambeth Pounds. Currently, this scheme operates by converting a specified portion of employees salaries into Lambeth Pounds after they are paid. The conversion happens after tax is already taken out of employee pay. In the future, however, this specified portion will be paid directly in Lambeth Pounds. This salary will then be taxable as per the explanation below. For businesses that accept Lambeth Pounds, there are two types of income tax considerations: tax paid by businesses on workers salaries, and self-employment tax paid by sole traders and business partnerships. For employed people (rather than self-employed people), we believe Lambeth Pounds are classed as non-cash voucher which is a readily convertible asset. While Lambeth Pounds cannot officially be converted into sterling by individuals and the goods/services that they employee can purchase with the Lambeth Pounds would also not be classified as readily convert