CCIA Compliance Reports - Spice by Local Money

Legal and compliance analysis of Spice Time Credits Organisation: Spice Introduction This guidance document describes the impact of relevant laws and regulations on the Spice Time Credits community currency. 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 Union’s Cohesion Policy ‒ Investing in Opportunities. Find out more about CCIA on our website:

www.communitycurrenciesinaction.eu

Introduction This guidance document describes the impact of relevant laws and regulations on the Spice Time Credits community currency. 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 Spice Time Credits.

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) Time credits are not taxable income. The Time Bank only records the time exchanged between its members. Time credits cannot buy goods or retail services. They have no cash/equivalent value. The Department of Work & Pensions ‘Time Exchange’ guidance states that ‘Participation in a time-exchange scheme is not voluntary work, but as the nature of the scheme is not to make any payment in cash, it is treated in the same way as voluntary work as far as the effect on JSA(IB) is concerned’ and that ‘carried out under the Time Exchange Scheme is not classed as remunerative work’. While answering a question on ‘time exchange schemes’, Angela Eagle, the Parliamentary Under- Secretary of State for Social Security, stated to the House of Commons on June 15 2000; “Time credits derived from participation in a time exchange scheme ... do not constitute earnings.” Links to original law texts and contact details regulatory authorities relevant for this sub topic: See Decision Makers Guide Volume 5, Chapter 26, Notional earnings https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/251801/dmg-vol5-consolidatedversion.pdf The Time Exchange Scheme 167. Participation in the Time Exchange Scheme is considered by community organisations and local government, as a way of involving people in their local communities, as part of a regeneration scheme. 168. Although participants in a Time Exchange Scheme may do so in the belief that they are volunteers, it is not regarded as volunteering for either income related or incapacity benefits, as volunteering is done without reward or expectation of reward. 169. However, work carried out under the Time Exchange Scheme is not classed as remunerative work and it is input JSAPS in exactly the same way as volunteering.

170. As there is a distinction between work undertaken on a voluntary or remunerative basis and that undertaken under the Time Exchange Scheme, offices need to be aware of what scheme(s) exist in their areas. 171. In a Time Exchange Scheme, time credits cannot be exchanged for goods or converted into alternative currency used by a Local Exchange Trading Scheme (LETS). For benefits purposes, participation in a LETS is self-employment and any activity undertaken will count towards the remunerative work rule. 1.2 Corporation tax Corporation Tax is a tax on the taxable profits of limited companies and some organisations including clubs, societies, associations, co-operatives, charities and other unincorporated bodies. Taxable profits for Corporation Tax include: • profits from taxable income such as trading profits and investment profits (except dividend income which is taxed differently) • capital gains - known as 'chargeable gains' for Corporation Tax purposes Spice Time Credits have no cash value and Time Credit Systems do not generate profit. Therefore the corporation tax is not applicable. Links to original law texts and contact details regulatory authorities relevant for this sub topic: HM Revenue and Customs http://www.hmrc.gov.uk/ct/getting-started/intro.htm#1 1.3 Income tax Taxable income in the UK includes: • • • • • • •

earnings from employment earnings from self-employment most pensions income (State, company and personal pensions) interest on most savings income from shares (dividends) rental income income paid to you from a trust

Earning time credits is counted as non-remunerative work and does not affect your entitlement to income related state benefits. Paul Boateng, the Minister of State, announced this decision during a debate in the House of Commons on June 15 2000; “I am pleased to announce today that, following legal advice, the Department of Social Security will provide new local guidance, advising that no account be taken of Time Credits earned in time exchange schemes when calculating income-related benefits.” This is reflected in Department of Work and Pensions Guidance which states ‘work carried out under the Time Exchange Scheme is not classed as remunerative work and it is input JSAPS in exactly the same way as volunteering’. Links to original law texts and contact details regulatory authorities relevant for this sub topic: See Decision Makers Guide Volume 5, Chapter 26, Notional earnings https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/251801/dmg-vol5-consolidatedversion.pdf The Time Exchange Scheme 167. Participation in the Time Exchange Scheme is considered by community organisations and local government, as a way of involving people in their local communities, as part of a regeneration scheme.

168. Although participants in a Time Exchange Scheme may do so in the belief that they are volunteers, it is not regarded as volunteering for either income related or incapacity benefits, as volunteering is done without reward or expectation of reward. 169. However, work carried out under the Time Exchange Scheme is not classed as remunerative work and it is input JSAPS in exactly the same way as volunteering. 170. As there is a distinction between work undertaken on a voluntary or remunerative basis and that undertaken under the Time Exchange Scheme, offices need to be aware of what scheme(s) exist in their areas. 171. In a Time Exchange Scheme, time credits cannot be exchanged for goods or converted into alternative currency used by a Local Exchange Trading Scheme (LETS). For benefits purposes, participation in a LETS is self-employment and any activity undertaken will count towards the remunerative work rule. HM Revenue and Customs http://www.hmrc.gov.uk/incometax/basics.htm

2. Insurance Under this topic there are 2 sub-topics that will be investigated. Firstly the impact on volunteers engaging in work on behalf of the currency operator and related need for insurance. Secondly how the governance board will be indemnified against major risks. In some cities/municipalities citizens engaging in volunteer work are covered by a municipal (accident/disability) insurance policy. There are, however, many municipalities where this not the case. The CCIA partnership assessed this for all programs we develop, and, where necessary, negotiate favorable terms with insurance companies to provide coverage in the event no city-wide volunteer insurance exists. Companies, charities, foundations and other entities (either profit or non-profit) who seek to introduce a currency scheme will need to consider the issue of potential liability of governance board members in the case of default, bankruptcy or other eventualities. In some countries (e.g. NL), insurance products for this type of liability are available (as long as the liability is not a result of e.g. illicit activities). For insurance companies the risks involved in running a community currency scheme may not be straightforward to assess, which means a negotiation can be required to agree upon the appropriate insurance policy. 2.1 Volunteer insurance (accident/disability) In the UK, all volunteer-involving organisations should have an insurance policy that covers volunteers. The organisation itself should be covered either under employer’s liability insurance or public liability insurance in the event of volunteers being harmed due to the organisation’s negligence. Public liability insurance should cover both the organisation and the volunteer in the event of a third party being injured through the actions of a volunteer. Depending on the type of work involved, the organisation may need professional indemnity insurance as well. Spice does not directly use volunteers but facilitates the use of volunteers in other organisations. Therefore all liability falls to partner organisations. This is clearly explained in our Community Partnership Agreement where all of our participating organisations agree to the following conditions: Safeguarding and liability All organisations in the network are responsible for all their own activities and processes and need to follow their own organisations policies and procedures in all Time Credit activities. Spice are not liable for any damages that occur in the course of activities run by your organisation or members that are using Time Credits. Links to original law texts and contact details regulatory authorities relevant for this sub topic: Volunteering England Fact Sheet – Insurance http://www.volunteering.org.uk/images/stories/Volunteering-England/Documents/VE-Info/Insurance-for-Volunteers(VE08.2).pdf

Spice Community Partnership Agreement 2.2 Liability of board Spice Time Credits have no cash value and Time Credit Systems do not generate profit. Therefore no debt can be incurred by currency failure and as such, this is not applicable. In the light of currency failure individuals holding currency unit are not entitled to any restitution, however, Spice’s terms and conditions statements make no reference to this eventuality.

3. Labor law One of the main target groups for social currencies are vulnerable an excluded strata of society, such as people with disabilities, the unemployed and people in deprived communities generally. Many of the people that can be (re)engaged and could participate in a social currency scheme are recipients of government/municipal welfare or (unemployment) benefits. For them to safely participate it is important that a dialogue is started and rulings are obtained on the potential impact of participation in social currency schemes from the relevant national and local authorities in the countries in which we implement them. 3.1 Social security Earning time credits is counted as non-remunerative work and does not affect your entitlement to income related state benefits. Paul Boateng, the Minister of State, announced this decision during a debate in the House of Commons on June 15 2000; “I am pleased to announce today that, following legal advice, the Department of Social Security will provide new local guidance, advising that no account be taken of Time Credits earned in time exchange schemes when calculating income-related benefits.” Guidance from the Department of Work and Pensions reflects this decision’ work carried out under the Time Exchange Scheme is not classed as remunerative work and it is input JSAPS in exactly the same way as volunteering’. In the UK, you are free to volunteer while you are receiving benefits. This is as long as the work you do is unpaid and you meet the rules of your benefit. Volunteering shouldn’t affect your right to benefits. As long as the only money you receive is to cover your volunteering expenses, such as travel. There are no limits on the amount of time you can volunteer for, as long as you continue to meet the conditions of the benefit or tax credit you are receiving. For example, if you receive Jobseekers Allowance you must • • •

still be actively seeking a full-time job able to attend job interviews at 48 hours' notice be available to work at one week’s notice

Links to original law texts and contact details regulatory authorities relevant for this sub topic: See Decision Makers Guide Volume 5, Chapter 26, Notional earnings https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/251801/dmg-vol5-consolidatedversion.pdf The Time Exchange Scheme 167. Participation in the Time Exchange Scheme is considered by community organisations and local government, as a way of involving people in their local communities, as part of a regeneration scheme. 168. Although participants in a Time Exchange Scheme may do so in the belief that they are volunteers, it is not regarded as volunteering for either income related or incapacity benefits, as volunteering is done without reward or expectation of reward.

169. However, work carried out under the Time Exchange Scheme is not classed as remunerative work and it is input JSAPS in exactly the same way as volunteering. 170. As there is a distinction between work undertaken on a voluntary or remunerative basis and that undertaken under the Time Exchange Scheme, offices need to be aware of what scheme(s) exist in their areas. 171. In a Time Exchange Scheme, time credits can never be exchanged for physical goods unless hired on an hourfor-hour basis (for example using credits to hire a P.A. system or item of children’s play equipment). Neither can they be converted into alternative currency used by a Local Exchange Trading Scheme (LETS). For benefits purposes, participation in a LETS is self-employment and any activity undertaken will count towards the remunerative work rule. Government Services Online http://www.nidirect.gov.uk/volunteering-while-on-benefits 3.2 Unemployment and disability benefits In the UK, disability benefit claimants need to demonstrate that they are unfit for work. As with voluntary work, it is important that participation in a Time Credit Network does not suggest otherwise as this could lead to agencies reassessing the benefits to which a person is entitled. Spice are satisfied that there are no additional ramifications in relation to unemployment or disability benefits beyond what has already been described. If and when queries arise from members either directly or via a partner organisation Spice can and does respond to them. It is our intention to produce a short factsheet that can be distributed to partners in order to satisfy their requirement to pass on clear and accurate information regarding benefits to their members. Links to original law texts and contact details regulatory authorities relevant for this sub topic: See Decision Makers Guide Volume 5, Chapter 26, Notional earnings https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/251801/dmg-vol5-consolidatedversion.pdf The Time Exchange Scheme 167. Participation in the Time Exchange Scheme is considered by community organisations and local government, as a way of involving people in their local communities, as part of a regeneration scheme. 168. Although participants in a Time Exchange Scheme may do so in the belief that they are volunteers, it is not regarded as volunteering for either income related or incapacity benefits, as volunteering is done without reward or expectation of reward. 169. However, work carried out under the Time Exchange Scheme is not classed as remunerative work and it is input JSAPS in exactly the same way as volunteering. 170. As there is a distinction between work undertaken on a voluntary or remunerative basis and that undertaken under the Time Exchange Scheme, offices need to be aware of what scheme(s) exist in their areas. 171. In a Time Exchange Scheme, time credits cannot be exchanged for goods or converted into alternative currency used by a Local Exchange Trading Scheme (LETS). For benefits purposes, participation in a LETS is self-employment and any activity undertaken will count towards the remunerative work rule.

3.3 Employment Terms It is not possible to pay wages in Time Credits as they have no cash value.

4. Privacy and safety Data protection is an important topic for most network services. Within CCIA project partners are responsible for formulating and implementing privacy policies to protect sensitive user data. The safety protection of individuals is embedded in several legal texts. We show how these apply to the selected currency types. For example do we deal

with registered offenders who want participate in currency programs? In addition there are specific regulations for working with the elderly and children. 4.1 Safety/Protection of (vulnerable) CC users Spice does not directly use volunteers but facilitates the use of volunteers in other organisations. Therefore all liability falls to partner organisations. This is clearly explained in our Community Partnership Agreement where all of our participating organisations agree to the following conditions: Safeguarding and liability All organisations in the network are responsible for all their own activities and processes and need to follow their own organisations policies and procedures in all Time Credit activities. Spice are not liable for any damages that occur in the course of activities run by your organisation or members that are using Time Credits. In addition, all Spice staff are CRB checked and receieve safeguarding training. Links to original law texts and contact details regulatory authorities relevant for this sub section: Spice Time Credits Community Partnership Agreement 4.2 Data storage and protection The 1998 Data Protection Act makes provision for the regulation of the processing of information relating to individuals, including the obtaining, holding, use or disclosure of such information. Spice stores information about participating members on its online platform – time credits.com. This data is collected solely for the purposes of facilitating the Time Credit Network (for example sending out information about upcoming events or spend opportunities) and reporting to funders. Appropriate technical measures have been taken to ensure the protection of this data online. In addition, Spice has a clear internal policy on Data Protection. Links to original law texts and contact details regulatory authorities relevant for this sub topic: 1998 Data Protection Act http://www.legislation.gov.uk/ukpga/1998/29/introduction Principles: 1. Personal data shall be processed fairly and lawfully and, in particular, shall not be processed unless – (a) at least one of the conditions in Schedule 2 is met, and (b) in the case of sensitive personal data, at least one of the conditions in Schedule 3 is also met. 2. Personal data shall be obtained only for one or more specified and lawful purposes, and shall not be further processed in any manner incompatible with that purpose or those purposes. 3. Personal data shall be adequate, relevant and not excessive in relation to the purpose or purposes for which they are processed. 4. Personal data shall be accurate and, where necessary, kept up to date. 5. Personal data processed for any purpose or purposes shall not be kept for longer than is necessary for that purpose or those purposes. 6. Personal data shall be processed in accordance with the rights of data subjects under this Act.

7. Appropriate technical and organisational measures shall be taken against unauthorised or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data. 8. Personal data shall not be transferred to a country or territory outside the European Economic Area unless that country or territory ensures an adequate level of protection for the rights and freedoms of data subjects in relation to the processing of personal data. Spice Data Protection Policy Spice will, through appropriate management and strict application of criteria and controls: a) Observe fully conditions regarding the fair collection and use of information b) Meet its legal obligations to specify the purposes for which information is used c) Collect and process appropriate information, and only to the extent that it is needed to fulfill its operational needs or to comply with any legal requirements d) Ensure the quality of information used e) Ensure that the rights of people about whom information is held, can be fully exercised under the Act. These include: • • • • • • • • •

The right to be informed that processing is being undertaken, The right of access to one’s personal information The right to prevent processing in certain circumstances and The right to correct, rectify, block or erase information which is regarded as wrong information) Take appropriate technical and organisational security measures to safeguard personal information Ensure that personal information is not transferred abroad without suitable safeguards Treat people justly and fairly whatever their age, religion, disability, gender, sexual orientation or ethnicity when dealing with requests for information Set out clear procedures for responding to requests for information

Data Collection Informed consent is when • • •

An Individual/Service User clearly understands why their information is needed, who it will be shared with, the possible consequences of them agreeing or refusing the proposed use of the data And then gives their consent. Spice will ensure that data is collected within the boundaries defined in this policy. This applies to data that is collected in person, or by completing a form.

When collecting data, Spice will ensure that the Individual/Service User: a) Clearly understands why the information is needed b) Understands what it will be used for and what the consequences are should the Individual/Service User decide not to give consent to processing c) As far as reasonably possible, grants explicit consent, either written or verbal for data to be processed d) Is, as far as reasonably practicable, competent enough to give consent and has given so freely without

any duress e) Has received sufficient information on why their data is needed and how it will be used Data protection Information and records relating to service users will be stored securely and will only be accessible to authorised staff and volunteers. Information will be stored for only as long as it is needed or required by statute and will be disposed of appropriately. Data Access and accuracy All Individuals/Service Users have the right to access the information Spice holds about them. Spice will also take reasonable steps ensure that this information is kept up to date by asking data subjects whether there have been any changes. In addition, Spice will ensure that: a) It has a person with specific responsibility for ensuring compliance with Data Protection b) Everyone processing personal information understands that they are contractually responsible for following good data protection practice c) Everyone processing personal information is appropriately trained to do so d) Everyone processing personal information is appropriately supervised e) Anybody wanting to make enquiries about handling personal information knows what to do f) It deals promptly and courteously with any enquiries about handling personal information g) It describes clearly how it handles personal information h) It will regularly review and audit the ways it hold, manage and use personal information i) It regularly assesses and evaluates its methods and performance in relation to handling personal information

5. Financial service regulations Any organization that prints physical ‘money’, or vouchers, makes electronic monetary units available, that are convertible into legal tender or is engaged in the provision of payment services will need to review how the relevant financial services regulations apply to their currencies and which enforcement bodies (Central Banks, National and international Finance institutions) need to be engaged with for compliance or exemptions. All countries have very strict laws restricting who can print money and currency operators will need to ensure that they do not contravene these rules. The provision of the electronic money directive and payment services directive only apply to those currencies that are not able to show that they operate in limited network. But more general rules and laws might apply, for example for the issuance of paper notes. 5.1 Issuing physical currency Banknotes are payable in Pound Sterling to the bearer on demand. In England and Wales it is not legal for anyone other than the Bank of England to issue banknotes. Local currency schemes often issue paper vouchers that have some similar physical characteristics to banknotes. However whilst the appearance of the vouchers are superficially similar to banknotes the legal form of a voucher is different from that of a banknote. Vouchers typically represent a pre-payment for goods or services from a specified supplier(s) and cannot be redeemed by consumers for cash. These are different to banknotes and the precise nature of the paper vouchers will typically be governed by terms and conditions which should make clear the status of the vouchers and the restrictions on their convertibility with Pound Sterling.

Spice Time Credits are not convertible into legal tender and they hold no cash value. They have a hologram feature to ensure the notes cannot be forged. Links to original law texts and contact details regulatory authorities relevant for this sub topic: Bank of England Information on Local Currencies http://www.bankofengland.co.uk/banknotes/Pages/localcurrencies/default.aspx 5.2 Digital currency non-convertible to national currency The FSA regulates electronic currency in the UK. They define electronic money as follows: Electronic money (e–money) is electronically (including magnetically) stored monetary value, represented by a claim on the issuer, which is issued on receipt of funds for the purpose of making payment transactions, and which is accepted by a person other than the electronic money issuer. Types of e-money include pre-paid cards and electronic pre-paid accounts for use online. Time Credits are not issued ‘on receipt of funds for the purpose of making payment transactions’ (FSA guidance) but are instead issued after an individual undertakes an activity. The value of a Time Credit is one hour and the number of credits received by an individual directly relates to the number of hours that she/he has participated in the activity. Spice Time Credits have no monetary value and as such legislation is this area is not applicable. Links to original law texts and contact details regulatory authorities relevant for this sub section: FSA E-money Regulations http://www.fsa.gov.uk/about/what/international/emoney 5.3 Digital currency convertible to national currency (if applicable) Spice Time Credits cannot be converted into sterling and so is not applicable. 5.4 Money laundering Spice Time Credits cannot be converted into legal tender and as such Money Laundering Legislation is not applicable. 5.5 Other central bank oversight regulations Spice Time Credits have no fixed monetary value and cannot be converted back into sterling so central bank oversights regulation is not applicable.

6. Acceptance of CCs by local governments Being accepted in lieu of legal tender particularly by public entities is the goal of many CCs. Municipalities accepting local currencies for both services (swimming pool, public transport etc..) and taxes (business rates, local taxes) gives CCs greater use value and credibility. However, especially in the Eurozone, those who tried to establish such spending possibilities in different countries encountered barriers of different kind, sometimes of personal nature (risk averseness) sometimes allegedly due to regional procedure regulations, state law or even EU law. 6.1 Acceptance of CCs for municipal services and taxes Spice has not faced any legal challenge for Time Credits being exchanged for municipal services which are time based activities. It is not possible to use Time Credits to pay taxes as they have no fixed cash value. Spice Time Credits can be exchanged for the following municipal services: - Swimming, gym and other leisure activities at local authority run leisure centres - DVD and CD hire at local authority run libraries - Entrance to tours and talks at local authority run heritage centres - Entrance to shows at arts venues run by, or in partnership with local authorities - Entrance to exhibitions and general admission to museums run by local authorities This has been achieved through our partnership arrangements. Strong partnerships are formed with 'host' organisations such as local authorities which facilitate access to municipal services. Discussions take place with managers of local services and front line staff to ensure accepting Time Credits does not impact revenue and that they can act an engagement tool for each participating service. No cash is exchanged through the system. 1 Time Credit = access to a 1 hour activity.

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