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HMRC internal manual

International Manual

Distribution exemption: overview: definitions

Explaining the terms used by the legislation


The term “distribution” continues to take its meaning for corporation tax purposes from CTA10/Part 23, Chapters 2 to 5.


The term “dividend” is not defined for the purposes of CTA09/Part 9A and takes its ordinary meaning.

Distribution of a capital nature

CTA09/Part 9A applies to distributions regardless of whether they are capital in nature. Originally it only applied to income distributions. The retrospective effect of the removal of this restriction means that distributions of a capital nature paid on or after 1 July 2009 now fall within the scope of Part 9A.

However, companies can elect for distributions paid before 22 June 2010 to be treated in accordance with the rules in place before the changes made in F(No.3)A 2010. In practice, this means that companies can elect for certain distributions to be excluded from Part 9A in limited circumstances.

Where a company elects for the retrospective aspects of the change not to apply, and the now repealed exclusion at CTA09/S931A (2) has effect, a distribution of a capital nature may be subject to corporation tax on chargeable gains. A distribution is of a capital nature if it does not constitute income.

The changes made by FA 2009 do not alter the scope of the chargeable gains legislation. The changes made by F(No.3)A 2010 make it clear that distributions that fall within Part 9A (regardless of whether such distributions are taxable or exempt under that part) do not result in a charge to corporation tax as a result of TCGA92/S22 or S122.

Recipient, payer and relevant person

These three terms are defined in CTA09/S931T. The payer and recipient are the companies making and receiving a distribution. A relevant person is the company which receives the distribution or any company connected to the recipient. CTA09/S1316 gives effect to CTA10/S1124 (previously ICTA88/S839) for the purpose of determining when two companies are connected with one another.

Scheme and tax advantage scheme

These terms are defined in CTA09/S931V. The term “scheme” is very widely drawn in the legislation to mean any scheme, arrangement or understanding of any kind. A scheme need not be legally enforceable and may include a single transaction or a series of transactions.

“Tax advantage scheme” is a scheme the main purpose of which, or one of the main purposes of which, is to obtain a tax advantage.