Corporation Tax Act 2010

Chargeable payments

1086 Chargeable payments connected with exempt distributions

(1) This section applies if a chargeable payment is made within 5 years after an exempt distribution.

(2) The amount or value of the payment is chargeable—

(a) to income tax, or

(b) to corporation tax under the charge to corporation tax on income.

(3) An amount charged to income tax under subsection (2) is treated for income tax purposes as an amount of income.

(4) Income tax under subsection (2) is charged on the full amount or value of the payment made in the tax year.

(5) The person liable for any income tax charged under subsection (2) is the person receiving or entitled to the payment.

(6) References in this section and sections 1087 to 1094 to a payment include—

(a) the assumption of a liability, and

(b) any other transfer of money’s worth.

1087 Chargeable payments not deductible in calculating profits

If a chargeable payment is made within 5 years after an exempt distribution, the chargeable payment is treated as a distribution for the purposes of section 1305 of CTA 2009 (no deduction for distributions in calculation of a company’s profits).

1088 Meaning of “chargeable payment”

(1) In this Chapter “a chargeable payment” means any payment which—

(a) meets each of conditions A to D in this section, or

(b) is a chargeable payment by virtue of section 1089.

(2) Condition A is that the payment is made by a company concerned in an exempt distribution and is made (directly or indirectly)—

(a) to a member of that company, or

(b) to a member of any other company concerned in the exempt distribution.

(3) Condition B is that the payment is made—

(a) in connection with the shares in the company making the payment,

(b) in connection with the shares in any other company concerned in the exempt distribution, or

(c) in connection with any transaction affecting the shares mentioned in paragraph (a) or (b).

(4) Condition C is that the payment—

(a) is not made for genuine commercial reasons, or

(b) forms part of a tax avoidance scheme.

(5) Condition D is that the payment—

(a) is not a distribution or an exempt distribution, and

(b) is not made to a company that belongs to the same group as the company making the payment.

(6) In this section and section 1089—

• “tax avoidance scheme” means a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax, and

• “tax” includes stamp duty and stamp duty land tax.

(7) This section is to be read with section 1089.

1089 Meaning of “chargeable payment”: unquoted companies

(1) This section applies if a company concerned in an exempt distribution is an unquoted company and a person makes a payment (to any person) in pursuance of a scheme or arrangement made—

(a) with the unquoted company, or

(b) if the unquoted company—

(i) is under the control of 5 or fewer persons (its “main participators”), and

(ii) is not excepted by subsection (6),

with any of the unquoted company’s main participators.

(2) The payment is a chargeable payment if it meets each of conditions B1 to D1.

(3) Condition B1 is that the payment is made—

(a) in connection with the shares in the company (if it is a company) making the payment,

(b) in connection with the shares in any company concerned in the exempt distribution, or

(c) in connection with any transaction affecting the shares mentioned in paragraph (a) or (b).

(4) Condition C1 is that the payment—

(a) is not made for genuine commercial reasons, or

(b) forms part of a tax avoidance scheme.

(5) Condition D1 is that the payment (if made by a company)—

(a) is not a distribution or an exempt distribution, and

(b) is not made to a company that belongs to the same group as that company.

(6) The unquoted company is excepted for the purposes of subsection (1)(b)(ii) if—

(a) it is under the control of (and only of) a company, and

(b) that company is not under the control of 5 or fewer persons.

1090 Meaning of “company concerned in an exempt distribution”

(1) For the purposes of this Chapter the companies concerned in an exempt distribution are—

(a) any relevant company (as defined in section 1080), and

(b) any other company which was connected with any relevant company for the whole or any part of the affected period.

(2) In this section “the affected period” means the period—

(a) beginning with the exempt distribution, and

(b) ending with the making of the payment in question.

(3) For the purposes of this section, if a company (“A”) is connected with another company (“B”) in the affected period, A is also connected in that period with any company with which B is connected (with or without the help of this subsection) in that period.