Part 23Company distributions
Chapter 3Matters which are not distributions
Introduction
1029Overview of Chapter
1
In this Chapter the following sections provide that a particular matter is not a distribution—
a
section 1030 (distributions in respect of share capital on a winding up),
F2aa
section 1030A (distributions in respect of share capital prior to dissolution of company),
b
section 1031 (distribution as part of a cross-border merger),
c
section 1032 (interest etc paid in respect of certain securities),
F5ca
section 1032A (payment in respect of tier two capital),
d
section 1033 (purchase by unquoted trading company of own shares),
e
section 1049 (stock dividends),
f
section 1054 (building society payments),
g
section 1055 (industrial and provident societies: interest and share dividends),
h
section 1056 (dividend or bonus relating to transactions with industrial and provident society), and
i
section 1057 (UK agricultural or fishing co-operatives: interest and share dividends).
2
The following make similar provision outside this Chapter—
a
section 1075 (exempt distributions), and
b
paragraph 6 of Schedule 12 to FA 1988 (transfer of building society's business to a company: qualifying benefits).
Distributions in a winding up
1030Distribution in respect of share capital in a winding up
A distribution made in respect of share capital in a winding up is not a distribution of a company for the purposes of the Corporation Tax Acts.
F1Distributions prior to dissolution of company
1030ADistributions in respect of share capital prior to dissolution of company
1
This section applies where—
a
the procedure in section 1000 of the Companies Act 2006 (power to strike off company not carrying on business or in operation) has been commenced in relation to a company, and
b
the company makes a distribution in respect of share capital in anticipation of its dissolution under that section.
2
This section also applies where—
a
a company intends to make, or has made, an application under section 1003 of that Act (striking off on application by company), and
b
the company makes a distribution in respect of share capital in anticipation of its dissolution under that section.
3
The distribution is not a distribution of a company for the purposes of the Corporation Tax Acts if conditions A and B are met (but see section 1030B).
4
Condition A is that, at the time of the distribution, the company—
a
intends to secure, or has secured, the payment of any sums due to the company, and
b
intends to satisfy, or has satisfied, any debts or liabilities of the company.
5
Condition B is that—
a
the amount of the distribution, or
b
in a case where the company makes more than one distribution falling within subsection (1)(b) or (2)(b), the total amount of the distributions,
does not exceed £25,000.
6
In the case of a company incorporated in a territory outside the United Kingdom, any reference in subsection (1) or (2) to a section of the Companies Act 2006 is to be read as a reference to any provision of the law of that territory corresponding to that section.
1030B Section 1030A: effect of company not being dissolved, etc
1
Where this section applies, a distribution made by a company is to be treated for the purposes of the Corporation Tax Acts as if section 1030A(3) had never applied to it.
2
This section applies where 2 years have passed since the making of the distribution and—
a
the company has not been dissolved during that time, or
b
the company has failed—
i
to secure, so far as is reasonably practicable, the payment of all sums due to the company, or
ii
to satisfy all of its debts and liabilities.
3
In a case where this section applies, all such adjustments as are required in order to give effect to subsection (1) are to be made, whether by the making of assessments or otherwise.
Distribution as part of a cross-border merger
1031Distribution as part of a cross-border merger
If—
a
a company making a distribution as part of a merger ceases to exist (without being wound up), and
b
section 140E or 140F of TCGA 1992 (cross-border mergers) applies in relation to the merger,
the distribution is not a distribution of a company for the purposes of the Corporation Tax Acts.
Payments of interest
1032Interest etc paid in respect of certain securities
1
Any interest or other distribution which—
a
is paid out of the assets of a company (“the borrower”) to another company which is within the charge to corporation tax,
b
is paid in respect of securities of the borrower which are special securities (as defined in section 1015), and
c
does not fall within paragraph E in section 1000(1) (distributions in respect of non-commercial securities),
is not a distribution for the purposes of the Corporation Tax Acts.
C12
But subsection (1) does not apply if the company to which the interest or other distribution is paid is entitled under any enactment to an exemption from tax in respect of that interest or distribution.
F4Tier two capital
S. 1032A and cross-heading inserted (retrospective to 26.10.2012) by Finance Act 2013 (c. 29), s. 43(5)(6)
1032APayment in respect of tier two capital
1
A payment made in respect of tier two securities is not a distribution for the purposes of the Corporation Tax Acts.
2
Subsection (1) does not apply in the case of any tier two securities if there are arrangements the main purpose, or one of the main purposes, of which is to obtain a tax advantage for any person as a result of the application of that subsection in respect of those securities.
3
For the purposes of this section—
a
“tier two securities” means securities (other than shares) issued by a bank or a parent undertaking of a bank that form part of the tier two capital resources of the bank or parent undertaking,
b
“bank” has the meaning given by section 1120,
c
“tax advantage” has the meaning given by section 1139,
d
“parent undertaking” is to be read in accordance with section 420 of FISMA 2000, and
e
the reference to tier two capital resources is to be read in accordance with the PRA Handbook made by the Prudential Regulation Authority (as that Handbook has effect from time to time).
4
In relation to any time before 1 April 2013, the reference in subsection (3)(e) to the PRA Handbook is to be read as a reference to the Handbook of Rules and Guidance made by the Financial Services Authority (as that Handbook had effect at the time in question).
Stock dividends
1049Stock dividends
1
This section applies to—
a
share capital issued by a UK resident company in lieu of a cash dividend, and
b
bonus share capital issued by a UK resident company in respect of shares in the company of a qualifying class.
2
For the purposes of subsection (1)(b) shares are of a qualifying class if—
a
shares of that class carry the right to receive bonus share capital in the company (of the same or a different class), and
b
that right is conferred by the terms on which shares of that class were originally issued or by those terms as subsequently extended or otherwise varied.
3
If the share capital is issued in a case where section 410(2), (3) or (4) of ITTOIA 2005 (stock dividend income) applies—
a
the share capital does not, despite paragraph C in section 1000(1) (redeemable share capital), constitute a distribution within the meaning of section 1000(1), and
b
the share capital is not, for the purposes of—
i
section 1022 (bonus issues following repayment of share capital), or
ii
section 1026 (distributions following a bonus issue),
treated as issued “as paid up otherwise than by the receipt of new consideration”.
4
This section is subject to—
a
section 1050, and
b
paragraph 108 of Schedule 2 (special rules for share capital issued in respect of shares issued before 6 April 1975).
1050Application of section 1049 where bonus share capital is converted etc
1
This section applies if bonus share capital falling within section 1049(1)(b) is converted into, or exchanged for, shares in the company of a different class.
2
In this section “replacement shares” means shares in the company issued—
a
in connection with the conversion or exchange, and
b
in consideration of the cancellation, extinguishment or acquisition by the company of the bonus share capital.
3
Section 1049 does not apply to any replacement shares.
4
But if section 410 of ITTOIA 2005 (stock dividend income) applied to any of the bonus share capital, subsection (5) applies to replacement shares issued in consideration of the cancellation, extinguishment or acquisition by the company of the bonus share capital to which section 410 of ITTOIA 2005 applied.
5
The replacement shares referred to in subsection (4)—
a
do not, despite paragraph C in section 1000(1), constitute a distribution within the meaning of section 1000(1), and
b
are not, for the purposes of—
i
section 1022 (bonus issues following repayment of share capital), or
ii
section 1026 (distributions following a bonus issue),
treated as issued “as paid up otherwise than by the receipt of new consideration”.
1051“Bonus share capital” and “in lieu of a cash dividend”
1
In sections 1049 and 1050 “bonus share capital” means—
a
share capital issued otherwise than wholly for new consideration, or
b
the part (if there is such a part) of any share capital so issued that is not properly referable to new consideration.
2
For the purposes of section 1049(1)(a) share capital is issued by a company in lieu of a cash dividend if—
a
it is issued in consequence of the exercise by a person of an option conferred on the person, and
b
that option is an option to receive, in respect of shares in the company, either a dividend in cash or additional share capital.
3
For the purposes of subsection (2), an option to receive either a dividend in cash or additional share capital is conferred on a person not only—
a
if the person is required to choose one or the other, but also
b
if the person is offered the one subject to a right, however expressed, to choose the other instead.
4
The reference in subsection (2) to a person's exercise of an option includes a person's abandonment of, or failure to exercise, a right such as is mentioned in subsection (3)(b).
1052Share capital to which section 1049 applies: returns
1
If a company issues, in an accounting period, share capital to which section 1049 applies (“relevant share capital”), the company must make a return of the capital for each return period in which it was issued (see section 1053).
2
The return must be made—
a
to an officer of Revenue and Customs, and
b
within 30 days from the end of the return period.
3
A return made under this section for a return period must give the following information for any relevant share capital issued by the company in the period—
a
the date on which it was issued,
b
the date on which the company was first required to issue it (if different from the date on which it was issued),
c
details of the terms on which it was issued, and
d
what its cash equivalent is under section 412 of ITTOIA 2005.
4
If it appears to an officer of Revenue and Customs that a company should have, but has not, made a return under this section for a particular return period, the officer may by notice require the company to do so.
5
If no relevant share capital was issued by the company in the return period, a return required to be made under subsection (4) must state that that is the case.
6
The notice under subsection (4) must specify the period within which the return must be made.
7
That period must be at least 30 days.
1053Return periods
1
For the purposes of section 1052 a company's return periods in any accounting period are the periods that begin and end as follows.
Rule 1 A return period begins at the beginning of the accounting period.
Rule 2 If one or more quarterly days fall within the accounting period (excluding the last day of the accounting period), the end of each such day is the end of a return period, and a new return period begins immediately afterwards.
Rule 3 A return period ends at the end of the accounting period.
2
For the purposes of subsection (1) the quarterly days are 31 March, 30 June, 30 September and 31 December.
Building society payments
1054Building society payments
1
This section applies if—
a
any interest, or
b
any dividend or other distribution,
is payable in respect of shares in, or a deposit with or loan to, a building society.
2
No part of the interest, or of the dividend or other distribution, is a distribution of the society for corporation tax purposes.
3
See also section 372 of ITTOIA 2005 (which makes provision about the income tax treatment of building society dividends).
Industrial and provident society payments
1055Industrial and provident societies: interest and share dividends
1
Interest paid by a registered industrial and provident society in respect of a mortgage, loan, loan stock or deposit is not a distribution for corporation tax purposes.
2
If any dividend, bonus, interest or other sum—
a
is paid to a shareholder in a registered industrial and provident society, and
b
is payable by reference to the amount of the shareholder's holding in the society's share capital,
it is not a distribution for corporation tax purposes.
3
Subsections (1) and (2) apply even if the amount in question would otherwise be a distribution by virtue of any enactment relating to corporation tax.
4
For the purposes of this section crediting an amount counts as paying it.
5
See also section 379(1) of ITTOIA 2005 (income tax treatment of sums payable as mentioned in subsection (2)).
1056Dividend or bonus relating to transactions
1
This section applies if—
a
a dividend or bonus is granted by a registered industrial and provident society, and
b
section 132 of CTA 2009 (dividends etc relating to transactions with an industrial and provident society) allows the sum representing the dividend or bonus to be deducted in calculating the profits of a trade.
2
The dividend, or the bonus, is not a distribution for the purposes of the Corporation Tax Acts.
Payments made by UK agricultural or fishing co-operatives
1057UK agricultural or fishing co-operatives: interest and share dividends
1
Interest paid by a UK agricultural or fishing co-operative in respect of a mortgage, loan, loan stock or deposit is not a distribution for corporation tax purposes.
2
If any dividend, bonus, interest or other sum—
a
is paid to a shareholder in a UK agricultural or fishing co-operative, and
b
is payable by reference to the amount of the shareholder's holding in the co-operative's share capital,
it is not a distribution for corporation tax purposes.
3
Subsections (1) and (2) apply even if the amount in question would otherwise be a distribution by virtue of any enactment relating to corporation tax.
4
For the purposes of this section crediting an amount counts as paying it.
5
See also section 379(1) of ITTOIA 2005 (income tax treatment of sums payable as mentioned in subsection (2)).
1058Meaning of “UK agricultural or fishing co-operative”
1
In section 1057 “UK agricultural or fishing co-operative” means a co-operative association—
a
which is established in the United Kingdom and UK resident, and
b
whose primary object is assisting its members in—
i
carrying on agricultural or horticultural businesses on land occupied by them in the United Kingdom, or
ii
carrying on businesses consisting of the catching or taking of fish or shellfish.
2
In subsection (1) “co-operative association” means a body with a written constitution from which the Secretary of State is satisfied that it is in substance a co-operative association.
3
For the purposes of subsection (2) the Secretary of State must have regard to the way in which the body's constitution provides for its income to be applied for its members' benefit, and all other relevant provisions.
4
In Northern Ireland subsections (2) and (3) apply with the substitution for “the Secretary of State” of “the Department of Agriculture and Rural Development”.
Supplementary provisions
1059Associated persons
1
This section and sections 1060 and 1061 contain the rules for determining whether a person is an associate of another (in relation to a company) for the purposes of this Chapter.
2
Two persons living together (see section 1116) who are—
a
a husband and wife, or
b
civil partners of each other,
are associates of one another.
3
If a person (“the young person”) is under the age of 18—
a
the young person is an associate of the young person's parents, and
b
the young person's parents are associates of the young person.
4
If a person is connected with a company—
a
the person is an associate of the company and any company controlled by it, and
b
the company and any company controlled by it are associates of the person.
5
If a person—
a
is connected with one company (“company A”), and
b
has control of another company (“company B”),
company B is an associate of company A.
6
If one person is accustomed to act on the directions of another in relation to the affairs of a company, the two persons are associates of one another in relation to that company.
1060Associated persons: trustees
1
If shares in a company are held by the trustees of a settlement then, in relation to the company—
a
the trustees are associates of—
i
any person who (directly or indirectly) provided property to the trustees or has made a reciprocal arrangement for another to do so,
ii
any person who is, by virtue of section 1059(2) or (3), an associate of a person within sub-paragraph (i), and
iii
any person who is, or may become, beneficially entitled to a significant interest in the shares, and
b
any such person is an associate of the trustees.
2
Subsection (1) does not apply to shares held on trusts which relate exclusively to a registered pension scheme.
3
Subsection (1) does not apply to shares held on trusts which—
a
are exclusively for the benefit of—
i
the employees, or the employees and directors, of the company referred to in subsection (1) (or of companies in a group to which that company belongs), or
ii
their dependants, and
b
are not wholly or mainly for the benefit of directors or their relatives.
4
For the purposes of subsection (1) a person's interest is significant if its value is greater than 5% of the value of all the settled property, excluding any property in which the person is not and cannot become beneficially entitled to an interest.
5
In subsection (3) “group” means a company which has one or more 51% subsidiaries, together with those subsidiaries.
1061Associated persons: personal representatives
1
If shares in a company are comprised in the estate of a person who has died then, in relation to the company—
a
the deceased's personal representatives are associates of any person who is or may become beneficially entitled to a significant interest in the shares, and
b
any such person is an associate of the personal representatives.
2
For the purposes of subsection (1) a person's interest is significant if its value is greater than 5% of the value of all the property comprised in the estate concerned, excluding any property in which the person is not and cannot become beneficially entitled to an interest.
1062Connected persons
1
This section contains the rules for determining whether a person is connected with a company for the purposes of this Chapter.
2
A person is connected with a company if the person directly or indirectly possesses, or is entitled to acquire, more than 30% of—
a
the issued ordinary share capital of the company,
b
the loan capital and the issued share capital of the company, or
c
the voting power in the company.
3
If a person—
a
acquired, or became entitled to acquire, loan capital of a company in the ordinary course of a business which includes the lending of money, and
b
takes no part in the management or conduct of the company,
the person's interest in that loan capital is ignored for the purposes of subsection (2).
4
A person is connected with a company if the person (directly or indirectly)—
a
possesses, or
b
is entitled to acquire,
rights that would, in the event of a winding up or in any other circumstances, entitle the person to receive more than 30% of the assets of the company which would then be available for distribution to equity holders of the company.
5
For the purposes of subsection (4)—
a
“equity holder” is to be read in accordance with sections 158 to 164, and
b
the percentage of the assets of a company to which a person would be entitled is to be determined in accordance with sections 166 and 167.
6
In section 166 as it applies for the purposes of subsection (4)—
a
references to company A are to be read as including a person who is not a company, and
b
references to a winding up are to be read as including references to any other circumstances in which assets of a company are available for distribution to equity holders.
7
A person who has control of a company is connected with it.
1063Section 1062: supplementary
1
References in section 1062 to the loan capital of a company are to any debt incurred by the company—
a
for any money borrowed or capital assets acquired by the company,
b
for any right to receive income created in favour of the company, or
c
for consideration the value of which to the company was (at the time when the debt was incurred) substantially less than the amount of the debt.
2
For the purposes of subsection (1)(c) the amount of the debt includes any premium on the debt.
3
For the purposes of section 1062 a person is treated as entitled to acquire anything which the person—
a
is entitled to acquire at a future date, or
b
will at a future date be entitled to acquire.
4
For the purposes of this section and section 1062 a person is assumed to have the rights and powers of the person's associates (as well as the person's own rights and powers).
Ss. 1030A, 1030B and cross-heading inserted (with effect in accordance with art. 18 of the amending S.I.) by The Enactment of Extra-Statutory Concessions Order 2012 (S.I. 2012/266), arts. 1, 16(3)