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HMRC internal manual

Company Taxation Manual

Distributions: purchase of own shares: quoted shares

Shares which are either:

  • in the official list of the Stock Exchange,


  • dealt in on the Unlisted Securities Market or Alternative Investment Market,

will normally pass through the hands of a market maker in those shares.

The market maker acts as principal. Where such a company purchases its own shares there are two stages in the sale,

  • the shareholder sells to the market maker,


  • the market maker sells to the company.

A broker may act as agent of the shareholder and the company. This is not an absolute requirement as a market maker may deal directly with the shareholder and the company.

Exceptionally, the shareholder and the company may not pass the shares through the hands of a market maker. Instead, they may use a broker to execute the transaction. This is an ‘agency cross’. In these circumstances the shareholder has sold the shares directly to the company. As a result, the distribution provisions will apply, unless either:

  • the shareholder is a dealer in relation to the shares (see CTM17630),


  • the transaction is an exempt purchase of own shares within CTA10/S1033.

However, usually the company will use a market maker. The shareholder will sell the shares to the market maker, rather than back to the company. Hence, the shareholder does not receive a distribution. As the market maker is a dealer, a purchase of its own shares by a company from a market maker gives rise to a trading receipt in the market maker’s hands (see CTM17630).