Commentary

D5.103 Distributions—definitions and terms

Corporate tax
Corporate tax | Commentary

D5.103 Distributions—definitions and terms

Corporate tax | Commentary

D5.103 Distributions—definitions and terms

The distribution legislation contains various terms and definitions which are explained further below. In the commentary below references to types of distributions are categorised according to the list at CTA 2010, s 1000(1) which allocates distributions into eight different paragraphs: paragraphs A–H (see D5.102).

Distributions—meaning of repayment of share capital

The general rule is that a repayment of capital on shares is not a distribution1, this broadly allows a company to return to shareholders the amount of capital they contributed. HMRC's view is that a repayment of share capital includes a redemption and repurchase of shares2. Any premium paid on the redemption of share capital is not treated as a repayment for the purposes of the distributions legislation3, so if a company issues shares with a £1 nominal value which are subsequently repaid for £3 each, the premium of £2 would not be a repayment of share capital and would probably be a distribution under paragraph B.

Repayment of share capital and share premium

If the share capital was issued at a premium, the premium represents new consideration and subsequently if the company makes a repayment of share capital, then the premium is treated as forming part of that share capital when determining the extent of any repayment4. So if 100, nominal £1 shares were issued by a company for £120, the £20 would be the share premium and if this share capital was repaid by the company later distributing £120 this would all be a repayment of capital

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