Income and Corporation Taxes Act 1988

[418 “Distribution” to include certain expenses of close companies. U.K.

(1) M1 Subject to such exceptions as are mentioned in section 209(1), in the Corporation Tax Acts “distribution”, in relation to a close company, includes, unless otherwise stated, any such amount as is required to be treated as a distribution by subsection (2) below.

(2) M2 Subject to subsection (3) below, where a close company incurs expense in or in connection with the provision for any participator of living or other accommodation, of entertainment, of domestic or other services, or of other benefits or facilities of whatever nature, the company shall be treated as making a distribution to him of an amount equal to so much of that expense as is not made good to the company by the participator.

(3) Subsection (2) above shall not apply to expense incurred in or in connection with the provision—

(a) M3 for a person employed in [F1 employment [F2 to which Part 3 of ITEPA 2003 applies (earnings and benefits etc. treated as employment income) without the exclusion in section 216 of that Act (provisions not applicable to lower-paid employment)]] of such benefits as are mentioned in any of [F3 Chapters 6 to 10 of Part 3 and section 223 of that Act (cars and vans, loans, shares, other benefits, and payments on account of director’s tax)]; or

(b) M4 of living accommodation for any person if the accommodation is (within the meaning of [F4 Chapter 5 of Part 3 of ITEPA 2003]) provided by reason of his employment; or

(c) M5 for the spouse [F5 or civil partner], children or dependants of a person employed by the company of any pension, annuity, lump sum, gratuity or other like benefit to be given on that person’s death or retirement.

(4) M6 The amount of the expense to be taken into account under subsection (2) above as a distribution shall be the same as would under [F6 Chapters 6 to 10 of Part 3 of ITEPA 2003] be the cash equivalent of the resultant benefit to the participator.

(5) M7 Subsection (2) above shall not apply if the company and the participator are both resident in the United Kingdom and—

(a) one is a subsidiary of the other or both are subsidiaries of a third company also so resident, and

(b) the benefit to the participator arises on or in connection with a transfer of assets or liabilities by the company to him, or to the company by him.

(6) The question whether one body corporate is a subsidiary of another for the purposes of subsection (5) above shall be determined as a question whether it is a 51 per cent. subsidiary of that other, except that that other shall be treated as not being the owner—

(a) of any share capital which it owns directly in a body corporate if a profit on a sale of the shares would be treated as a trading receipt of its trade; or

(b) of any share capital which it owns indirectly, and which is owned directly by a body corporate for which a profit on a sale of the shares would be a trading receipt; or

(c) of any share capital which it owns directly or indirectly in a body corporate not resident in the United Kingdom.

(7) Where each of two or more close companies makes a payment to a person who is not a participator in that company, but is a participator in another of those companies, and the companies are acting in concert or under arrangements made by any person, then each of those companies and any participator in it shall be treated as if the payment made to him had been made by that company.

This subsection shall apply, with any necessary adaptations, in relation to the giving of any consideration, and to the provision of any facilities, as it applies in relation to the making of a payment.

(8) For the purposes of this section any reference to a participator includes an associate of a participator, and any participator in a company which controls another company shall be treated as being also a participator in that other company.]

Textual Amendments

F1 1989 s.53(2)(f).Previously

“director's or higher-paid employment (within the meaning of section 167)”.

F2 Words in s. 418(3)(a) substituted (6.4.2003 with effect in accordance with s. 723(1) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 55(2)(a) (with Sch. 7)

F3 Words in s. 418(3)(a) substituted (6.4.2003 with effect in accordance with s. 723(1) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 55(2)(b) (with Sch. 7)

F4 Words in s. 418(3)(b) substituted (6.4.2003 with effect in accordance with s. 723(1) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 55(3) (with Sch. 7)

F5 Words in s. 418(3)(c) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 73

F6 Words in s. 418(4) substituted (6.4.2003 with effect in accordance with s. 723(1) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 55(4) (with Sch. 7)

Marginal Citations

M1 Source—1970 s.284(1)

M2 Source—1970 s.284(2)

M3 Source—1970 s.284(2)(a); 1976 Sch.9 15

M4 Source—1970 s.284(2)(aa); 1980 s.51(4)

M5 Source—1970 s.284(2)(b); 1976 Sch.9 15; 1977 s.35(4)

M6 Source—1970 s.284(3); 1976 Sch.9 16

M7 Source—1970 s.284(4)-(7)