Dividends and other company distributions: the charge to tax on UK dividends etc.
Dividends etc from UK resident companies
The Income Tax charge on dividends and other distributions from UK resident companies is at ITTOIA05/S383. Such distributions include amounts that would otherwise be treated as capital (a capital distribution may fall within the definition of distribution and therefore be taxed as income). SAIM5030 has more on the meaning of ‘distribution’.
The income charged is the full amount or value of the dividends paid and other distributions made in the tax year (ITTOIA05/S384 - subject to certain rules on share incentive plans - SAIM5080).
SAIM5040 has more on the meaning of ‘paid’.
If the recipient of the distribution is entitled to a tax credit, the amount charged is the amount or value of the distribution plus the tax credit (SAIM5090). Tax credits on UK company distributions were abolished by FA16/S5 and SCH1 with effect from 6 April 2016.
The person liable
Distributions are made, in most circumstances, by way of dividend payments to shareholders, but the charge to tax under ITTOIA05/S385 is on any person to whom any distribution is made or treated as made, or the person receiving or entitled to the distribution. This encompasses the wide range circumstances in which value may be distributed from a company, for example
- all types of distribution as set out in CTA10/S1000, CTA10/S1113(3)(4) and CTA10/S1117(7)(8);
- dividends in open ended investment companies that are treated as paid to the owners of shares in the company (ITTOIA05/S386(3));
- dividends in authorised unit trusts that are treated as paid to the unit holders (ITTOIA05/S389(3));
- the charge on a participator in a close company who receives a ‘distribution’ within the extended meaning in CTA10/S1064 (expenses incurred by a close company).
Consistently with CTA10/S1109(3) ,where the distribution actually belongs to someone other than the recipient, or under any provision of the Tax Acts is treated as belonging to someone other than the recipient, that other person is chargeable to tax.
See CTM15270 where a person waives their right to a dividend so that another shareholder may benefit. In such cases the Settlements legislation may apply.
Tax credits - tax years up to 2015-16
ITTOIA05/PART4/CHAPTER3 also sets out the rules on tax credits attached to dividends and other distributions received from UK companies. The tax credit rules applied whether or not the dividends etc. were taxable under CHAPTER3.