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HMRC internal manual

International Manual

Distribution exemption: Exemption for all other companies: transactions not designed to reduce tax

CTA09/S931H: profits resulting from transactions not designed to reduce tax

The exempt class given by CTA09/S931H was originally available only to dividends and not to other types of distribution. This section was modified by F(No.3)A 10, and now applies to dividends and other types of distributions.

S931H divides profits available for distribution into “relevant profits” and other profits. Relevant profits are those that do not result from transactions designed to reduce UK tax (see INTM653100 for guidance on the meaning of “relevant profits” for this section).

If a distribution does not fall into any other exempt class other than the S931H class (so needs to rely on this exempt class), it is exempt only to the extent it is sourced from relevant profits. If a company has relevant profits and profits that are not relevant profits (bad profits) available for distribution, then any distribution reliant solely on S931H is regarded as being paid out of bad profits in priority to relevant profits. In the event that there are bad profits, but of an amount less than the distribution, a distribution will be treated as two separate distributions, one of which will be regarded as paid out of bad profits and not exempt.

A distribution that is exempt under another exempt class (such as one paid in respect of a non-redeemable ordinary share) is treated as paid (as far as possible) out of relevant profits and so will not deplete the pool of profits other than relevant profits.

A distribution paid out of profits other than relevant profits will deplete the fund of such profits that are available for distribution. Once all such profits are paid out by way of distribution, any further distribution (or part distribution) is treated as paid out of relevant profits and so qualifies for exemption.


A company has relevant profits of 1000 and other profits of 2000. It pays a distribution that is not exempt under any other exempt class of 1200, followed by a distribution on a non-redeemable ordinary share of 500, then another 1000 distribution that is not exempt elsewhere.

Dividend Amount paid from relevant profits Amount paid from other profits Relevant profits remaining Other profits remaining
      1000 2000
1200   1200 1000 800
500 500   500 800
1000 200 800 300  

The final distribution is therefore taxable to the extent of 800, but exempt for the remaining 200.

See INTM655020 regarding the consequences for underlying tax of CTA09/S931H.