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HMRC internal manual

Capital Gains Manual

From:
HM Revenue & Customs
Published:
12 March 2016
Updated:
3 September 2026 - See all updates

CG40700 - Companies and groups of companies: administration: recovery of Corporation Tax from shareholders

TCGA92/S189

The effect of Section 189 is to enable the Revenue to recover from a shareholder connected with a company (referred to below as `the shareholder') Corporation Tax not paid by the company in respect of chargeable gains where either

  • the shareholder received a capital distribution from the proceeds of the disposal that gave rise to the chargeable gain

or

  • the assets on which the gain arises were disposed of by way of a capital distribution to the shareholder.

In these circumstances, the shareholder is liable for the unpaid Corporation Tax whether he or she receives or becomes entitled to receive a capital distribution in respect of shares in the company.

`Capital distribution' for these purposes means any distribution from a company, including one made in the course of dissolution or winding up, in money or money's worth which does not constitute income in the recipient's hands for the purposes of Income Tax. It does not include a capital distribution which represents a reduction of capital.

See CG66450C concerning the recovery of tax where assets are transferred at undervalue.


Assessment under s189 TCGA 1992: timing

An assessment under Section 189 charging a shareholder connected with the company to an amount of Corporation Tax (in the name of the company) may be made where

  • the Corporation Tax assessment on the company for the accounting period in which the chargeable gain accrued included an amount in respect of chargeable gains, and
  • (for accounting periods ending before 1 October 1993) any of the tax charged by the assessment has not been paid within six months from the normal due and payable date
  • (for accounting periods ending after 30 September 1993) any of the tax charged by the assessment has not been paid within six months from the later of
  • the normal due and payable date
  • the date the assessment was made on the company.

The assessment must be made within two years of the normal due and payable date for accounting periods ending before 1 October 1993 and within two years of the applicable date for accounting periods ending after 30 September 1993.

See AC3370 for details of the assessing procedure.


Assessment under s189 TCGA 1992: amount

The amount of Corporation Tax to which a shareholder connected with the company may be charged cannot exceed the lower of

  • the value of the capital distribution the shareholder received or has become entitled to receive
  • the proportion of the Corporation Tax payable on the chargeable gain which is the same as the proportion the shareholder received of the capital distribution made by the company.


Example

A Ltd disposes of an asset for £100,000 giving rise to a chargeable gain of £50,000.

The tax on the gain is £12,000, but the company did not pay this within six months of the appropriate date.

The company, in the course of a members' voluntary liquidation, uses £94,000 of the£100,000 received (its total assets) to pay off creditors.

Mrs X held one-third of the total issued share capital and received a capital distributionof £2,000 in respect of her shares out of a total capital distribution of £6,000.

Mrs X should be assessed within two years of the appropriate date (in the name of the company) to an amount of Corporation Tax equal to the lower of

  • the value of the distribution received - £2,000
  • one-third of the Corporation Tax due on the chargeable gain (Mrs X received one- third of the capital distribution) - £4,000.


Recovery by shareholder from company

TCGA92/S189 (4)

A shareholder who pays tax under this section is entitled to recover that amount from the company. For accounting periods ended after 30 September 1993 interest under TMA70/S87A may also have been paid and can be recovered by the shareholder.


Gains made by the shareholder

TCGA92/S189 (5)

Section 189 has no bearing on the liability which may arise on a shareholder where the capital distribution received itself gives rise to a chargeable gain on that shareholder as it constitutes a disposal of an interest in shares in the company.