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HMRC internal manual

Company Taxation Manual

Tax elected funds (TEFs): tax treatment & distributions made by TEFs: attribution of income and the distributions made by a TEF

Once the different components of the income of a tax elected fund (TEF) have been identified as per CTM48932, all the income shown in the accounts as available for distribution or accumulation (see CTM48415) must be attributed between TEF distributions (dividends) and TEF distributions (non-dividends) in accordance with 69Z59 SI2006/964.

The regulations do not prevent separate physical payments of each type of distribution being made.

TEF distributions (dividends)

The following component parts of the income of a TEF are attributed to TEF distributions (dividends):

Under regulation 69Z60 SI2006/964 TEF distributions (dividends) are treated as dividends on shares which are paid on the distribution date.

TEF distributions (non- dividend)

The income attributed to TEF distributions (non-dividend) is other income as defined in CTM48932.

TEF distributions (non-dividend) are treated for the purposes of the Tax Acts as a payment of yearly interest made on the distribution date under regulation 69Z61 SI2006/964.

In the hands of investors the distribution is treated in the same way as interest received by them. This is explained more fully in CTM48945and CTM48946.

Deduction of tax from TEF distributions (non-dividend)

As this distribution is treated as a payment of yearly interest a sum must be deducted by the TEF in respect of income tax at the basic rate in force for the tax year in which the distribution is made (as defined in ITA07/S7) in accordance with ITA07/S874. The tax deducted at source should be accounted for to HMRC under ITA07/S951.

The TEF must account for the income tax on forms CT61 in the usual way.

Payment of TEF distributions (non-dividend) without deduction of tax

Where a non-dividend distribution is made to a participant there are a range of circumstances in which payments must be made without deduction of income tax. The exceptions from the duty to deduct are given in chapter 3 and in chapter 11 of part 15 ITA 2007. These circumstances are covered in CTM48600.