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HMRC internal manual

Company Taxation Manual

Distributions: general: exclusion of certain interest or other amounts

CTA10/S1000 (1) F, CTA10/S1015 and CTA10/S1032.

CTA10/S1000 (1) F can recharacterise interest as a distribution. In some circumstances companies can benefit from this.

For example, there may be a loan agreement that provides for the payment of interest at a fixed rate plus a minute share of the borrowing company’s profits. The security will fall within CTA10/S1015 (4) and all the interest will be treated as a distribution. The consequences are that, overall, the parties could be better off at the Exchequer’s expense as:

  • the borrower will get no relief for the interest paid,


  • the lender will receive the interest as franked investment income rather than taxable income.

CTA10/S1032 (1) prevents this happening. It stops a company treating interest or other amounts paid to another company within the charge to CT as a distribution within any part of CTA10/S1000 (1) F.

This legislation aims to counter the contrived use of CTA10/S1000 (1) F for tax avoidance by arranging for what is in substance interest to be treated as a distribution by being brought within its terms. But it applies whenever its terms are met, not just if avoidance is present.

CTA10/S1032 (1) applies to any interest or other distribution which:

  • is paid to another company within the charge to CT,


  • is paid in respect of securities within CTA10/S1015


  • does not fall within CTA10/S1000 (1) E.

Such interest or other distribution is not treated as a distribution unless the application of CTA10/S1032 (1) is excluded by CTA10/S1032 (2).

CTA10/S1032 (2) prevents CTA10/S1032 (1) applying where the recipient of the distribution is exempt from tax on the distribution.