HMRC internal manual

Company Taxation Manual

CTM15120 - Distributions: general: introduction


The “distributions legislation” in broad terms aims to ensure that if a company gives anything to one of its members without the member giving full payment in return, then a tax liability arises.

The legislation applies where the company passes money or assets to members or shareholders in their capacity as members. So it does not apply where the company pays members or shareholders for services to the company. Such payments are covered by the provisions of ITEPA03.

Such distributions received by individuals fron UK-resident companies are assessable as income under ITTOIA05/S383.

Distributions received by companies are in most cases exempt from Corporation Tax (CT) under CTA09/S931A. (See INTM651000).

CTA10/S1000 (1) gives a broad definition under paragraphs A to H of ‘distribution in the Corporation Tax Acts’, which in effect means a distribution of income nature for tax purposes. It identifies particular items that are distributions.  It is broader than the definition of distribution in company law at CA06/S829, extending to certain capital issues and reorganisations, and  to interest or other distributions out of assets in respect of certain securities.  It includes:

  • Any dividend, including a capital dividend CTM15200;
  • Bonus issues of securities or redeemable shares (see CTM15450);
  • Transfers of assets and of liabilities between a company and its members CTM15250;
  • Payments of interest or other distributions out of assets to the extent that they exceed a commercial rate (see CTM15500);
  • Payments of interest or other distributions out of assets on certain ‘special’, for example where interest is results-dependent, securities (see CTM15500);
  • Bonus issues of shares on or following a repayment of share capital (see CTM15420);
  • Any other distribution out of assets of the company in respect of shares in the company, which is not a return of capital or for consideration (see CTM15350).

Special provisions

There are some special provisions that modify the general approach of the distributions legislation. These deal with:

  • Companies in liquidation (CTM36130);
  • Registered societies, including Industrial and provident societies (CTM40560);
  • Building societies (CTM49100);
  • Mutual traders (BIM24000 onwards);
  • Companies which do not and have not carried on a trade or a business of holding investments (CTM15550);
  • Groups of companies (CTM80070);
  • Stock dividends (CTM17000 onwards);
  • Demergers (CTM17200 onwards);
  • Purchase of own shares by unquoted trading companies (CTM17500 onwards).


Anti-avoidance provisions, CTA10/S1032, CTA10/S1112

A distribution paid by one UK resident company to another is not chargeable to CT in the hands of the recipient. This opens the possibility of avoidance. To prevent such avoidance, CTA10/S1032 disapplies the distributions legislation in certain circumstances (see CTM15530).

CTA10/S1112 also seeks to counter reciprocal arrangements that aim to side step the distributions legislation (see CTM15560).

Close companies

CTA10/1000 (2) and S1064 treats certain expenses of close companies as distributions (see CTM60500 onwards).

Winding-up, CTA10/S1030 and S1030A

There are special rules relating to distributions in respect of share capital where a company is being wound-up (see CTM36130).

References in the Corporation Tax Acts to distributions do not apply to distributions made in respect of share capital in a winding-up, and in some cases prior to winding-up.

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Unincorporated associations

The term company in CTA10/S1000 includes an unincorporated association. Such associations can make distributions (see CTM15540).

Non-residents, CTA09/S1305

Either a UK resident or non-resident company can make a distribution. Neither UK resident nor non-resident companies are allowed any deduction for a distribution in computing profits for CT purposes.

90 per cent groups

A 90 per cent group is defined in CTA10/S1072.

Where a company is a member of such a group, it may make a distribution out of its own assets in respect of shares or securities of another group company. If this happens, CTA10/S1072 (1) treats the distribution as a CT Acts distribution. However, CTA10/S1072 (3) provides that this does not apply if the distribution is to another UK resident member of the same group.

Reciprocal arrangements, CTA10/S1112

Some companies may enter into arrangements to make distributions to each other’s members. There are rules to deal with this (see CTM15560).

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)