UK Local Exchange Trading and Complementary Currencies
Development Agency

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LEGAL ISSUES

These are the topics we have come across which seem to be relevant.
1. Legal Structures for LETS
2. Equal Opportunities
3. Data Protection
4. Status of LETS with the Inland Revenue
5. Individuals' LETS transactions and Tax
6. Standard of Work and Insurance Issues
7. Department of Work and Pensions
8. Developing the LETS model
9. Organisational Structure of LETSlink UK


1. LEGAL STRUCTURES for LETS
The LETS Info-pack provides a model Members Agreement and Constitution similar to that of a community association, which uses a democratic process to appoint officers who manage the scheme on an honorary basis. They may in turn employ individual members using LETS currency to carry out specific tasks, and sub-committees as required. Such community-based mutuals are usually called LETSchemes. However, some LETS are structured as a business, ie they are owned by the individuals setting them up and the participants are regarded as clients, as in mainstream Barter Networks - this is analagous to the difference between a Building Society and a Bank. These are usually called LETSystems and tend to adhere to a set of rules laid down by the LETSystems Trust which is closer to the original Canadian model - their ethos encourages involvement with local mainstream businesses. However, this distinction is by no means consistent or universally undersood by LETS organisers. Only a detailed research programme would enable us to ascertain exactly which legal structure LETS groups are really using. Meanwhile the latest concept of a "social enterprise" bridging these two models, and enabling a group of individuals to work co-operatively but also have a stake in the scheme, invites new legal structures to be developed - we will discuss this further in the Members' Area.

2. Equal Opportunities
In general the constitution of a LETS scheme will state that membership is open to all, regardless of age, sex, sexual orientation, ethic origin, or ability. However, some LETS groups will be aimed at a certain membership category, the usual one being geographical location, but it could be a particular interest area or section of the community, in which case this should be clearly stated.

3. Data Protection
The same provision applies as for all small organisations, namely that where data is being collected for the specific purpose of sharing information between members, the organisation does not need to register with the Data Protection Authority.

4. Status of LETS groups with the Inland Revenue
The LETS Group itself, as a non-profit-making community association, is tax-exempt, ie its officers do not have to complete an annual Corporation Tax Return on its sterling turnover.

5. Individuals' LETS transactions and Tax
Trades which are not part of a member's normal business will not affect their taxable income, eg a Computer Programmer doing a massage for a friend, or a Masseur writing a computer programme. LETS transactions which are part of a member's normal business may be of interest to the Inland Revenue. However, if the income and expenditure balance out (which is, after all, what the LETS model is all about), there is no net profit to report, unless the income comes from the business and the outgoings are "personal drawings", ie if the computer programmer earns local currency from writing software but spends it having a massage. Having said that, most members will not be earning anything above their tax allowance, so it is unlikely that their income in local currency will impact on their tax situation.

To avoid any problem arising, members can have separate business and personal accounts within the LETS, keep them both balanced, and ensure that expenditure within the business account appertains to the business. Where this is not feasible, ie where the member is carrying out a substantial part of their business on LETS and drawing from it for personal transactions, they may need to ask for a proportion of their earnings on the scheme in sterling currency, in the same way as they will usually charge sterling for materials used, to cover income tax payments, so that they can declare this income. People using LETS to launch new businesses may come into this category, and where this applies to them, it will be part of their success story that they were able to launch their business in the real economy. NB Members themselves, not the LETS, are responsible for their relationship with the Inland Revenue, and this is usually written ito the members agreement.

6. Standard of Work and Insurance Issues
The Constitution and Members Agreement places the responsibility for transactions with members themselves rather than with the local LETS organisation which acts only as an introduction agency. It therefore follows that members themselves are responsible for ensuring the person they are trading with provides appropriate references and has their own insurance for professional work.

7. Department for Work and Pensions (DWP)
Despite rumours propagated by Timebanks, LETS members are able to conduct their activities without reference to the benefits authorities. Many LETS members have self-sufficient life-styles or as pensioners or housewives do not have contact with the DSS (now DWP). Where individuals have interacted with the DWP, most local officers have regarded their LETS involvement to be irrelevant to their status as claimants, on the basis that whatever "currency" is earned on LETS can only be spent within the membership of their own LETS scheme and is not the same as money. In the early days of LETS, when journalists wrotes stories causing a lot of anxiety aout benefits issues, LETSLINK UK used to provide LETS organisers with forms for their members to use when trading, which the person "employing" them can sign to say they are still available for work without notice being given.

Members are generally advised to work on LETS for less than 15 hours a week, and it is unusual anyway for hours spent on LETS work to approach this level. Particular specialised advice should be provided by LETS organisers to members who are in receipt of Disability Allowances who may fear that membership of LETS could be interpreted as demonstrating an ability to work, but in practice the hours of work are usually very limited and with appropriate support can be described as "therapeutic work", or the person can trade services which do not involve actual work. When a group is funded and they contact the DWP, formal statements have tended to adopt a robust tone, but in practice, the few individuals experiencing difficulties, with help from expert members of LETS, have successfully challenged the authorities. Further details and case histories will be made available in the Members' Area - meanwhile here is a copy of the Available for Work Form which can be used to support claimants in their dealings with the DWP - AVAILABILITY.

Press reports emphasising these issues under headlines such as "Beating the System" were detrimental to member recruitment, and Letslink UK therefore launched a campaign to have the small print of the Benefits Legislation clarified. Following negotiations from 1996 to 2000 with the Government (some of the material is archived on this site), it was announced in July 2000 that LETS transactions expressed as hours rather than currency would be disregarded for benefits assessment. On this basis, a variation of LETS which had been piloted by one of our earliest member-schemes, "Fairshares", inspired by Professor Edgar Cahn's Time Dollars model in the USA which encourages people to help their neighbours in deprived inner-city areas and records their transactions simply as "hours", was taken up by New Economics Foundation, renamed as a Time Bank, and promoted as "government-approved". However, LETSlink UK's own research on LETS in 1995 indicated that many LETS schemes had already adopted a "equal-time" policy, or where members were charging varying rates per hour for their services were almost all quoting a "standard-rate" per hour which members could use if they wished to trade equal hours.

The fact that transactions are expressed as currency, LETS allows proper pricing of locally grown produce, crafts, second-hand goods, and items for hire - all important offers within the self-sufficient and sustainable agenda to which most LETS groups aspire - be handled in a logical way. Timebanks inevitably encounter the issue of materially rewarding members for time spent working on the scheme, ie the need to transact for goods using hours, and in some places have begun to print notes equal to "one hour" etc, reminiscent of the famous Ithica Hours scheme in New York State USA) which by default come to adopt a certain value. Fixed-value vouchers have already been piloted in several places by LETS groups - we believe the first was the Portsmouth "Bennie" named after the Beneficial Centre where LETSlink UK was based from 1979 to 1999 - to enable rapid trading on "market-days" and to encourage participation by socially excluded communities who are not familiar with the use of cheques - see further discussions of these and other low-technology alternatives in the Members' Area. Transition Towns are now beginning to print "local pounds", which become part of the cash economy, and we are not aware that any questions have been raised about these.

8. Developing the LETS model
New organisers of LETS schemes who are concerned about legal issues should be aware that these differences are semantic and should not deter them from setting up sensible accounting systems. One approach, the doorway having been opened as far as legislation is concerned, would be to pursue this to its logical conclusion and obtain a benefits disregard for all LETS schemes and not just some calling themselves by a certain name. LETSlink UK has recently not had the resources to pursue the campaign, but with increasing membership support, it could be taken up again. Meanwhile, in order to ensure that members are covered in their interactions with the DSS there is no reason why outputs should not be designed to provide vulnerable members with the option of "hours accounting" on their transaction records and this requirement should be high on the agenda of those designing new accounting software. We do know that a number of organisers are unsure whether to call their schemes a LETS or a Timebank. Some are running a LETS and a Timebank from the same office, and even sharing space with a Volunteer Agency, which enables members to mix and match their participation according to their circumstances. Others are actively pursuing a hybrid model which is a more elegant solution. Proposed names are a "Time LETS", a LETS Bank, or a LETTS (Local Exchange & Time-Trading Scheme). Our current recommendation is that all groups adopt a standard RATE PER HOUR for when members wish to trade on an equal basis, so it can be said that all LETS groups adopting this policy are time-based.

9. Organisational Structure of LETSlink UK
LETSlink UK began as a small social enterprise in 1991 and developed an informal network of client local schemes. In 1997 it became a Company Limited by Guarantee with charitable aims. Local networks have become active in some areas, for example London, which has LETSlink London. whilst other areas need more support from the centre. Steps are now being taken to improve our performance in supporting members by means of a national hub and local technical networks.

MF/September 2003/ updated May 2010

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