The use of incentives to promote the purchase of community shares is acceptable as long as the incentives are consistent with the rules of the society. A distinction should be made between incentives that are linked directly to share capital, for instance, offering interest payments in kind (a community pub paying interest in beer, or a community bakery paying interest in baked goods) and incentives that are linked more broadly to membership, such as discounts on the society’s products or services. As long as the latter type of incentive is not associated with either how much share capital the member has invested, or their level of transactions with the society, then such incentives should be treated as a marketing cost for the society and not a reward to the member. A society should ensure that it has taken the marketing cost of such incentives fully into account in its business plan.
Payment of interest or dividends in kind is subject to income tax (see Section 8.3). The recipients of such payments should be given information on how to declare this income to HMRC.
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