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United Kingdom
United Kingdom
Key definition
Trading company definition What does Trading company mean? In local government practice, a trading company is an arm’s‑length corporate vehicle used by a local authority to carry on commercial, function‑related activities to generate income and manage risk. It is usually a company limited by shares or guarantee under the Companies Act 2006, owned or controlled by the authority (often called a local authority trading company or LATCo, and sometimes structured to meet the Teckal in‑house exemption). The concept is descriptive rather than a term of art. In England, such trading stems from section 95 of the Local Government Act 2003 and, more commonly now, the Localism...
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UK tax: share buybacks by unquoted trading companies and holding companies of trading groups - capital treatment conditions, anti-avoidance, substantial reduction and connection tests, HMRC clearances and returns
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Practice notes
If a company undertakes a share buyback itself, or via an intermediary acting as the company’s agent, the usual tax position for a UK-resident shareholder is that the transaction is regarded, for UK tax purposes at the time of repurchase, as both:
- a disposal of their shares for chargeable gains purposes, and
- the receipt of an income distribution
Beyond that, the precise treatment differs slightly according to whether the shareholder is an individual or a corporate owner. For further detail on these differences, see Practice Notes: Tax consequences of share buybacks—main rules and Tax consequences of share buybacks—calculating the income capital split.
However, special provisions can apply to repurchases by certain unquoted companies. These rules can prevent any of the consideration from being treated as a distribution in the hands of a particular UK-resident shareholder. Under those provisions, the whole sum received by that shareholder is treated as disposal proceeds for CGT/corporation tax on chargeable gains purposes. The comparative advantages of this—ie wholly capital treatment—depend on the taxpayer’s circumstances. Note that where a particular seller of shares back to the company is a share dealer, the amount received will nevertheless be treated as trading income in that seller’s hands...
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Web page updated on 22/05/2026
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