HMRC internal manual

International Manual

Distribution exemption: Exemption for small companies: tax advantage scheme

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Effect of tax advantage scheme

A distribution received by a small company is not exempt if it is paid as part of a tax advantage scheme (see INTM652050 for explanation of that term).

A scheme is not a tax advantage scheme if the tax advantage which constitutes a main purpose is a negligible tax advantage. In determining whether a tax advantage is negligible, the following factors should be considered.

  • The amount of the tax advantage relative to the overall size of the company and its economic affairs and (where relevant) the size of the wider economic entity (typically the group of companies).
  • The absolute amount of the tax advantage.
  • Whether the tax advantage is a timing matter only, or whether there is a permanent tax saving: a timing advantage is more likely to be negligible.

The term “negligible” implies a low threshold and only in exceptional circumstances would a tax advantage of more than [£10,000] be considered negligible.