Distributions received by UK companies are taxable unless they fall within one of the exemptions. This document covers the basic principles on dividends, together with the small company definition and exemption; dividends received by non-small companies; exempt classes; capital distributions; tax advantage scheme; and election to treat dividend as non-exempt.
From 1 July 2009, distributions received by UK companies are taxable unless they fall within a particular exempt category, regardless of whether they are paid by UK or overseas companies. The relevant rules are contained in CTA 2009, Part 9A. This guidance note deals with the tax treatment of distributions made to companies on or after 1 July 2009. It also considers what is included within the meaning of distributions for this purpose.
ScopeThe definition of 'distributions' for the purpose of the corporation tax acts is broad. In overview, it includes the following:
- any dividend including capital dividends (this does not include distributions as part of a winding up)
- any other distribution out of the assets of the company in respect of shares in the company, whether in cash or otherwise (this does not include the repayment of capital for shares as a distribution)
- redeemable share capital or any new security, if not issued for full consideration
- interest, or other distribution in respect of non-commercial securities where the consideration given by the company for the loan is more than a reasonable commercial return. Only the excess of interest over a reasonable commercial return is treated as a distribution.
- interest or other distribution made in respect of 'special securities', which does not fall within the case above relating to non-commercial securities. As above, only the excess of interest over a reasonable commercial return is treated as a distribution.
- the amount of any benefit received in excess of market value on transfers of assets or liabilities between the company and its members
- in certain cases, amounts in respect of bonus issues of shares following a repayment of share capital