CTM15120 - Distributions: general: introduction
Source: gov.uk (2025-07-22)


CTA10/S1000

The 'distributions legislation' in broad terms aims to ensure that if a company (as defined at CTA10/S1121) transfers value out of its assets to a member or members without full recompense a tax liability potentially arises.

The legislation applies where the company passes money or other assets to members or shareholders in their capacity as members. Bonus issues of debt securities and redeemable shares (that is, not issued for new consideration) are also in scope, together with interest on non-commercial securities (return above a normal commercial rate) and on special securities (return business-results dependent). The legislation is complex and details are developed over the following guidance paragraphs.

But the legislation does not apply where the company pays members or shareholders for services to the company. Such payments are covered by the provisions of ITEPA03 instead.

Such 'dividends and other distributions' from a UK-resident company made (or treated as made) to persons within the charge to Income Tax (individuals, mostly), or who receive or are entitled to receive them, see ITTOIA05/S385 (1), are treated as income under S383 (2) and charged accordingly under ITTOIA05/S383 (1). S383 (3) ensures income treatment is applied even if the dividends and other distributions would be capital apart from S383 (2).

UK resident companies are not charged to Income Tax - CTA09/S3 (1)(a) - and in most cases are exempt from the charge to Corporation Tax (CT) on dividends and other distributions under CTA09/S931A, see INTM651000 (http://home.active.hmrci/intmanual/INTM651000.htm).

CTA10/S1000 (1) as itemised in paragraphs A to H provides an expansive definition of ‘distribution in the Corporation Tax Acts’, mostly items of an income nature, for tax purposes. S1000 is broader than the definition of distribution in company law at CA06/S829, extending to certain capital issues and reorganisations, as well as to interest or other distributions out of assets in respect of certain securities. In more detail it includes:
- Any dividend, including a capital dividend (which is different in meaning from the 'dividends of a capital nature' mentioned in the context of dividends from non-UK resident companies at ITTOIA05/S402 (4), see CTM15200 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15200));
- Bonus issues of securities or redeemable shares, see CTM15450 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15450);
- Transfers of assets and of liabilities between a company and its members, see CTM15250 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15250);
- Payments of interest or other distributions out of assets to the extent that they exceed a commercial rate, see CTM15500 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15500);
- Payments of interest or other distributions out of assets on certain ‘special’ securities, for example where interest is results-dependent, see CTM15500 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15500);
- Bonus issues of shares on or following a repayment of share capital, see CTM15420 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15420);
- Any other distribution out of assets of the company in respect of shares in the company, which is not a return of capital or for consideration, see CTM15350 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15350).
Special provisions

There are some special provisions that modify the general approach of the distributions legislation. These deal with:
- Companies in liquidation, see CTM36130 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm36130);
- Registered societies, including Industrial and provident societies, see CTM40560 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm40560);
- Building societies, see CTM49100 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm49100);
- Mutual traders, see BIM24000 (https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim24000) onwards;
- Companies which do not and have not carried on a trade or a business of holding investments, see CTM15550 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15550);
- Groups of companies, see CTM80070 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm80070);
- Stock dividends, see CTM17000 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm17000) onwards;
- Demergers,see CTM17200 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm17200) onwards;
- Purchase of own shares by unquoted trading companies, see CTM17500 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm17500) onwards.
Anti-avoidance provisions, CTA10/S1032, CTA10/S1112

A distribution paid by one UK resident company to another is in general not chargeable to CT in the hands of the recipient, see above. This opens the possibility of avoidance. To prevent such avoidance, CTA10/S1032 disapplies the distributions legislation in certain circumstances, see CTM15530 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15530).

CTA10/S1112 also seeks to counter reciprocal arrangements that aim to sidestep the distributions legislation, see CTM15560 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15560).

Close companies

CTA10/1000 (2) and S1064 treat certain expenses of close companies as distributions, see CTM60500 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60500) onwards.

Winding-up, CTA10/S1030 and S1030A

There are special rules relating to distributions in respect of share capital where a company is being wound-up, see CTM36130 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm36130).

References in the Corporation Tax Acts to distributions do not apply to distributions made in respect of share capital in a winding-up, and in some cases prior to winding-up.

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Unincorporated associations

The term company in CTA10/S1000 includes an unincorporated association. Such associations can make distributions, see CTM15540 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15540).

Non-residents, CTA09/S1305

Either a UK resident or non-resident company can make a distribution. Neither UK resident nor non-resident companies are allowed any deduction for a distribution in computing profits for CT purposes.

90 per cent groups

A 90 per cent group is defined in CTA10/S1072.

Where a company is a member of such a group, it may make a distribution out of its own assets in respect of shares or securities of another group company. If this happens, CTA10/S1072 (1) treats the distribution as a CT Acts distribution. However, CTA10/S1072 (3) provides that this does not apply if the distribution is to another UK resident member of the same group.

Reciprocal arrangements, CTA10/S1112

Some companies may enter into arrangements to make distributions to each other's members. There are rules to deal with this, see CTM15560 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15560).

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)