Company distributions: the draft legislation

Finance Act 2009 created a single tax regime for UK companies (now in CTA 2009 Part 9A) in relation to UK and foreign distributions.

Distributions which are not ‘of a capital nature’ are now subject to corporation tax on income unless within one of the new exemptions.

The new regime has given rise to some problems. Although the Government said that no change in treatment was intended under the new regime some UK distributions of a capital nature which were previously exempt from tax as distributions are now taxable as chargeable gains. That position was exacerbated when in response to requests for clearance HMRC began to take the view that dividends paid from a reserve created on a reduction of capital were distributions of a capital nature (and so outside Part 9A) contrary to the views of many practitioners and to...