Credit unions in the United Kingdom do get some special tax treatment, but they are still subject to certain taxes, according to Matt Bland, head of policy and communications at the Association of British Credit Unions.
“They get a significant benefit from mutual trading tax exemptions which mean that their business done with members is tax exempt, so the income they receive from interest on lending to members" — their primary source of income — "goes untaxed. On the other hand, they do pay corporation tax on interest income received from investments" (deposits with banks, for instance).
Interestingly, they do have one notable tax disadvantage: they are subject to the Value Added Tax (VAT) on certain purchases but cannot reclaim VAT paid in the way that other companies do, Bland said.
“Overall, we believe that the tax settlement for UK credit unions presents a positive balance which should incentivize credit unions to maximize their member lending activities and, where this happens, provides a significant benefit to offset their less favorable treatment in respect of investment income and VAT,” he said.