Finance (No. 2) Act 1975

Section 34.

SCHEDULE 8 Stock Dividends : Supplementary Provisions

Meaning of " the appropriate amount in cash "

1 (1) Where a company issues any share capital to which the principal section applies (in this paragraph called " the share capital in question "), any reference in the principal section or this Schedule to " the appropriate amount in cash " shall, in relation to that share capital, have the meaning given by sub-paragraph (2) or (3) below, as the case may be.

(2) Subject to sub-paragraph (3) below, where the company issues the share capital in question—

(a) in consequence of the exercise of an option such as is mentioned in subsection (1)(a) of the principal section; or

(b) in a quantity which is determined by or determines the amount of a dividend in cash payable in respect of share capital in the company of a different class,

" the appropriate amount in cash " means the amount of the relevant cash dividend or, in a case in which subsection (3) of the principal section applies, a due proportion of that amount.

(3) In any case not falling within sub-paragraph (2)(a) or (b) above, and in any case so falling in which the amount of the relevant cash dividend is substantially greater or substantially less than the market value of the share capital in question on the relevant date, " the appropriate amount in cash " means the market value of the share capital in question on that date or, in a case in which subsection (3) of the principal section applies, a due proportion of that market value.

(4) In this paragraph—

• " the relevant cash dividend ", in a case falling within sub-paragraph (2)(a) above, means the cash dividend mentioned in subsection (1)(a) of the principal section or, in a case falling within sub-paragraph (2)(b) above, means, subject to sub-paragraph (5) below, the cash dividend there mentioned ;

• " the relevant date ", in the case of share capital listed in The Stock Exchange Daily Official List, means the date of first dealing and, in the case of share capital not so listed, means the due date of issue.

(5) Where, in a case falling within sub-paragraph (2)(b) above, the company on the occasion on which it issues the share capital in question also issues a dividend in cash (" the accompanying cash dividend") in respect of the shares in the company in respect of which that share capital is issued, " the relevant cash dividend " shall in this paragraph mean the cash dividend mentioned in sub-paragraph (2)(b) above reduced by the amount of the accompanying cash dividend.

2 (1) Subject to the provisions applied by sub-paragraphs (2) and (3) below, in the preceding paragraph " market value ", in relation to any share capital in a company, means the price which that share capital might reasonably be expected to fetch on a sale in the open market.

(2) Section 44(3) of the [1965 c. 25.] Finance Act 1965 (market value of shares or securities listed in The Stock Exchange Daily Official List) shall, with the omission of the reference to paragraph 22(3) of Schedule 6 to that Act, apply for the purposes of this paragraph as it applies for the purposes of Part III of that Act.

(3) In the case of shares or securities which are not quoted on a recognised stock exchange (within the meaning of the Corporation Tax Acts) at the time when their market value for the purposes of the preceding paragraph falls to be determined, subsection (3) of section 51 of the [1973 c. 51.] Finance Act 1973 shall apply with respect to the determination of their market value for those purposes as it applies with respect to a determination falling within subsection (1) of that section.

Close companies

3 (1) Where a company issues to a close company any share capital to which the principal section applies, the following provisions of this paragraph shall apply as regards that share capital; and in those provisions " the relevant accounting period " means the accounting period of the close company in which the due date of issue falls.

(2) The relevant income of the close company for the relevant accounting period, as determined under paragraph 8 of Schedule 16 to the [1972 c. 41.] Finance Act 1972, and the amount which, under paragraph 9 of that Schedule (read, where appropriate, with paragraph 13 of that Schedule), the relevant income of the close company for that period cannot exceed, shall each be increased by an amount equal to the appropriate amount in cash (or, if it would otherwise be nil, be treated as equal to the appropriate amount in cash).

(3) The amount, if any, which would otherwise be disregarded under paragraph 14(1) of the said Schedule 16 (legal restrictions on distributions) shall be reduced by an amount equal to the appropriate amount in cash.

(4) For the purposes of the definition of " apportioned amount" in paragraph 7(1) of the said Schedule 16 (consequences of apportionment: advance corporation tax), the amount of the company's income apportioned under paragraph 1 of that Schedule shall be treated as reduced by an amount equal to the appropriate amount in cash.

4 Where a close company issues any share capital to which the principal section applies as mentioned in subsection (4), (5) or (6) of the principal section or paragraph 3(1) above (read in each case with subsection (3) of that section), the company shall be treated for the purposes of paragraph 10(1) of Schedule 16 to the [1972 c. 41.] Finance Act 1972 (definition of " distributions " of a close company)—

(a) as if a dividend of an amount equal to the appropriate amount in cash had been paid on the due date of issue ; and

(b) where, in relation to that share capital, " the appropriate amount in cash" has the meaning given by paragraph 1(2) above, as if that dividend had been declared in respect of the accounting period (if any) in respect of which the relevant cash dividend (as defined in paragraph 1(4) above) was declared.

Capital gains tax

5 In applying paragraph 4(3) of Schedule 7 to the [1965 c. 25.] Finance Act 1965 (chargeable gains: reorganisation of share capital) in relation to the issue of any share capital to which the principal section applies, as involving a re-organisation of the company's share capital, there shall be allowed, as consideration given for so much of the new holding as was issued as mentioned in subsection (4), (5) or (6) of the principal section, or paragraph 3(1) above (read in each case with subsection (3) of that section), an amount equal to what is, for that much of the new holding, the appropriate amount in cash ; and this paragraph shall have effect notwithstanding the proviso to the said paragraph 4(3).

Company distributions

6 Any share capital to which the principal section applies which is issued by a company as mentioned in subsection (4), (5) or (6) of that section or paragraph 3(1) above (read in each case with subsection (3) of that section)—

(a) shall, notwithstanding paragraph (c) of subsection (2) of section 233 of the Taxes Act (definition of " distribution "), not constitute a distribution within the meaning of that subsection; and

(b) for the purposes of section 234(1) and 235(1) of that Act (bonus issues following repayment of share capital, and matters to be treated or not treated as repayments of share capital) shall not be treated as issued " as paid up otherwise than by the receipt of new consideration ".

Returns of issues of share capital to which the principal section applies

7 (1) A company shall for each of its accounting periods make, in accordance with this paragraph, returns to the inspector of all share capital to which the principal section applies which was issued by it in that period.

(2) The provisions of paragraph 1(2) and (3) of Schedule 14 to the [1972 c. 41.] Finance Act 1972 (periods for which returns are to be made, and meaning of " a return period ") shall apply for the purposes of this paragraph as they apply for the purposes of that Schedule, but with the substitution of " thirty days " for " fourteen days" in paragraph 1(3):

Provided that, in the case of a return period ending before the date of the passing of this Act, the said paragraph 1(3) as applied by this sub-paragraph shall be read as requiring a company to deliver a return for that period not later than the end of the period of thirty days beginning with that date.

(3) No return need be made under this paragraph by a company for any period in which it has issued no share capital to which the principal section applies.

(4) The return made by a company for any return period shall state—

(a) the date on which any share capital to which the principal section applies issued by it in the period was issued and, if different, the date on which the company was first required to issue it;

(b) particulars of the terms on which any such share capital so issued by it was issued ; and

(c) what is, in relation to any such share capital so issued, the appropriate amount in cash.

(5) If it appears to the inspector that a company ought to have, but has not, made a return for any return period, he may (notwithstanding sub-paragraph (3) above) by notice in writing require the company to make a return for that period within such time (not being less than thirty days) as may be specified in the notice; and a return required to be made under this sub-paragraph shall, if such be the case, state that no share capital to which the principal section applies was issued in the period in question.

(6) As regards any share capital included in a return made under this paragraph by a company, the inspector may, by notice in writing, require the company to furnish him within such time (not being less than thirty days) as may be specified in the notice with such further information relating thereto as he may reasonably require for the purposes of the principal section and this Schedule.

(7) For the purposes of this paragraph (including the provisions applied by sub-paragraph (2) above) an accounting period of a company beginning before 6th April 1975 and ending on or after that date shall be deemed to have begun on that date.

8 In the Table, in section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalty for failure to make returns etc.) the following shall be added in the first column—

“Paragraph 7(5) and (6) of Schedule 8 to the Finance (No. 2) Act 1975”

and the following shall be added in the second column—

“Paragraph 7(1) to (4) of Schedule 8 to the Finance (No. 2) Act 1975”.