Income and Corporation Taxes Act 1988

Distributions

3 (1) For the purposes of this Chapter the distributions of a company for an accounting period shall, subject to sub-paragraphs (2) to (4) and paragraph 12 below, be taken to consist of—

(a) any dividends which are declared in respect of the period and are paid during the period or within a reasonable time thereafter;

(b) all distributions made in the period except dividends which, in relation to any previous period, would fall under paragraph (a) above; and

(c) anything that would be a distribution but for section 213 or 219 (or both).

(2) Where a period of account is not an accounting period, dividends which, if it were an accounting period, would be treated under sub-paragraph (1)(a) above as distributions for that accounting period shall be apportioned to any accounting period or part of an accounting period falling within the period of account in proportion to the distributable income of each such period or part.

(3) For the purposes of determining whether there is any such excess as is referred to in section 424(1), no account shall be taken of a distribution which, in relation to the company making it, is a bonus distribution unless—

(a) it is made to a person other than a close company, or

(b) it is made to a close company and the share capital or security of which it consists is subsequently distributed, by that or any other close company, by a distribution falling within section 14(2)(b) to a person other than a close company.

(4) Where a bonus distribution has occurred and, by virtue of paragraph (a) or paragraph (b) of sub-paragraph (3) above, it falls to be taken into account for the purpose of determining whether there is any such excess as is referred to in section 424(1), no account shall be taken for that purpose of a qualifying distribution which consists of the repayment of the share capital or, as the case may be, the principal of the security, which constituted the bonus distribution.

(5) In sub-paragraphs (3) and (4) above “bonus distribution” means a distribution which in relation to the company making it is a distribution by virtue only of paragraph (c) of section 209(2).