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HMRC internal manual

Savings and Investment Manual

Dividends and other company distributions: meaning of distribution

‘Distribution’ follows its meaning for Corporation Tax purposes

The term ‘distribution’ is not expressly defined in Chapter 3 of Part 4 of ITTOIA05. Its meaning comes from CTA10/S1119, which in turn follows Part 6 of ICTA88 (company distributions, tax credits, etc.). CTA10/S1000(2) extends the meaning of ‘distribution’ to include amounts paid to, or expenses of, participators in close companies.

Distributions are made, in most circumstances, to shareholders. CTA10/S1113(3)(4) and CTA10/S1117(7) and (8) treats something done ‘in respect of a share’ as being done to the shareholder, or to someone who has at a particular time been the shareholder.

The term ‘company’ includes an unincorporated association. Such associations can make distributions (CTM15540).

See CTM15560 for rules where companies make arrangements to make distributions to each other members.

Distribution has a broad meaning

The term distribution is defined in CTA10/s1000(1) to include the following.

  • Dividends
  • Bonus issues of securities or redeemable shares
  • Transfers of assets and liabilities between a company and its members
  • Payments of interest or other distributions to the extent that they exceed a commercial rate
  • Payments of interest or other distributions on certain securities
  • Bonus issues on or following a repayment of share capital
  • Any other distribution out of the assets of a company in respect of shares in the company.

The distributions legislation aims to ensure that if a company gives anything to one of its shareholders then a tax liability arises. However, the general rule is that a repayment of share capital is not a distribution (CTA10/S1000(1)B, subject to the rules in CTA10/S1024 to 1027 (CTM15400 onwards). (SAIM20000)

The legislation does not apply to the case where a company passes money or assets to a shareholder other than in their capacity as a member. For example, payments for services to the company will be taxable as employment income or trading income of the shareholder/member. See CTM15290 and EIM21640 onwards for more on the case where a company transfers an asset at less than market value to an employee or director.

However, there are a number of special provisions that modify the general approach of the distributions legislation. See CTM15120 for more details.

See CTM15130 for further details on the terms used in the distributions legislation.

An issue of shares at par, when they are worth more than par, does not give rise to a distribution. No value leaves the company, although there may in effect be a transfer of value between shareholders.