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HMRC internal manual

International Manual

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Distribution exemption: overview: basis of charge

Basis of charge and the commencement rule

CTA09/S931A includes all company distributions within the charge to corporation tax, but only if they are not exempt according to the rules given in the rest of CTA09/Part 9A.

Part 9A applies to distributions paid on or after 1 July 2009 (FA09/SCH14/PARA31).

CTA10/S1168 specifies that dividends are treated as paid for the purposes of the Corporation Tax Acts ‘on the date when they become due and payable’. This rule does not apply to dividends of an authorised or unauthorised unit trust, for which separate rules are specified.

The date when a final dividend becomes due and payable is usually established by a resolution of the company. The dividend becomes due when the date on which it is expressed to be payable arrives. Only then is payment enforceable. In the case of a final dividend where a date for payment is not specified, an immediately enforceable debt is created so that the date of declaration of the dividend is the due and payable date.

An interim dividend can be varied and rescinded at any time before payment and can therefore only be regarded as ‘due and payable’ when the date for payment arrives.

The main case law authority for the above propositions is Potel v CIR (1970) (46TC658) which makes clear that the declaration of a dividend by a company and its payment are two separate matters.

Elsewhere the legislation refers to distributions that are received (for example, CTA09/S931D). A distribution is received at the same time that it is paid, as defined above.