Scope of distributions for tax purposes
Scope of distributions for tax purposes

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Scope of distributions for tax purposes
  • Why does it matter whether a payment is a distribution?
  • The definition of distribution
  • Four categories of distribution
  • Scope of the definition
  • Payments which are expressly excluded from being a distribution
  • Extension of distributions legislation for arrangements

Scope of distributions for tax purposes

The most common type of distribution is a dividend paid in cash by a company to its shareholders, ie a direct cash distribution of profits to the owners of a company.

However, the corporation tax definition of distribution is different from the company law definition (for which, see Practice Note: Dividends, distributions and scrip dividends).

Why does it matter whether a payment is a distribution?

It is important to be able to identify whether a particular payment by a UK company is a distribution because if a payment is a distribution:

  1. the payer is not entitled to a deduction for the payment in its UK corporation tax calculation, and

  2. a UK corporate recipient will be subject to corporation tax on the receipt in accordance with CTA 2009, Part 9A, unless the distribution falls within one of the specific exemptions—for further information, see Practice Notes: How are small companies taxed on distributions received? and How are non-small companies taxed on distributions received?

Since most normal distributions will fall within one of the exemptions from tax, it is usually to the advantage of the recipient taxpayer for it to be treated as a distribution.

By contrast the absence of a corporation tax deduction is disadvantageous to the payer. It is therefore vital to understand the breadth of distributions for corporation tax purposes.

For information on how individuals

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