Dividends and other company distributions: the charge to tax on UK dividends etc.
Dividends etc from UK resident companies
The charge to tax on dividends and other distributions from UK resident companies is 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).
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).
Consistent 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.
Chapter 3 of Part 4 ITTOIA05 also sets out the rules on tax credits attached to dividends etc received from UK companies. The tax credit rules apply whether or not the dividends etc. are taxable under Chapter 3.