Commentary

D5.151 Small companies distribution exemption

Corporate tax
Corporate tax | Commentary

D5.151 Small companies distribution exemption

Corporate tax | Commentary

D5.151 Small companies distribution exemption

Distributions paid by a UK or overseas company are chargeable to corporation tax on the recipient unless the distribution is exempt1. When determining if a distribution is exempt, two different regimes apply depending upon whether the recipient is a small company(see below) or not (see D5.152).

Provided a taxpayer does not elect otherwise (D5.150), distributions received by small companies (as defined below) in the accounting period of receipt will be exempt either under the general exemption or the exemption where the distribution is received from a controlled foreign company (CFC) (see D4.435), these are both detailed further below.

General exemption for distributions received by small companies

A dividend or distribution received by a small company in an accounting period in which it is small will be exempt if all the following four conditions are met2:

  1.  

    •     the payer is resident only either in the UK or a qualifying territory at the time of receipt

  2.  

    •     the distribution is not a distribution on a non-commercial security (D5.120) or a distribution on a special security (D5.127). These two types of distributions are where interest is recharacterised as a distribution, the distribution will therefore generally be taxable income for the small company

  3.  

    •     no deduction is allowed to a resident of any territory outside the UK under the law of that territory in respect of the distribution, and

  4.  

    •     the distribution is not made as part of a tax advantage scheme

The last three condition also apply to the

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