Legal Practice Notes

Eight anti-avoidance rules block the use of one or more exempt distribution classes for distributions received by companies that are not small. For an outline of the exempt classes, see Practice Note: How are non-small companies taxed on distributions received? For further guidance on the meaning of a small company, see Practice Note: What is a small company for the purposes of the distribution exemption? The four anti-avoidance rules discussed in this Practice Note apply generally; that is, where a distribution offends any one of these rules, it cannot fall within any exempt class and will, as a result, be automatically chargeable to tax......

Eight anti-avoidance rules block the use of one or more exemption classes for distributions received by companies that are not small. For an outline of the exempt categories, refer to Practice Note: How are non-small companies taxed on distributions received? For the definition of a small company, see Practice Note: What is a small company for the purposes of the distribution exemption? This Practice Note explains four of those anti-avoidance provisions, aimed at distributions which, absent such anti-avoidance rules, would otherwise fall within one or more particular exempt classes as set out in this Practice Note......

Unless a distribution falls within an exempt category (and subject to certain additional conditions), a non-small company will be chargeable to corporation tax on amounts received on such income; otherwise it remains taxable as received in the UK accordingly. Exempt classes of distribution dividends on shares presented as liabilities, discussed in more detail in this Practice Note distributions paid by controlled companies distributions relating to irredeemable ordinary shares distributions on portfolio holdings distributions arising from transactions not intended to reduce tax For details of the tax charge on distributions, see Practice Note: How are non-small companies taxed on distributions received? For the exemptions relevant to small companies, see Practice Note: How are small companies taxed on distributions received? For the meaning of 'small company', see Practice Note: What is a small company for the purposes of the...

A company that is not small is chargeable to corporation tax on any distribution it receives unless, subject to other conditions, the payment falls within an exempt category. There are five exempt categories of distribution: distributions from controlled companies, discussed further in this Practice Note (for receipts before 1 January 2013, see Practice Note: Distribution exemption—controlled companies before 1 January 2013 [ Archived]) distributions relating to non-redeemable ordinary shares distributions concerning portfolio holdings distributions arising from arrangements not intended to reduce tax, and dividends on shares recorded as liabilities For more detail on the corporation tax charge on distributions, see Practice Note: How are non-small companies taxed on distributions received? For guidance on the exemptions relevant to small companies, see Practice Note: How are small companies taxed on distributions received? and for an explanation of what counts as a small company, see Practice Note: What is a small company for the...

A 'loan relationship' means a monetary debt arising from the lending of money. Yet this wording does not capture every form of arrangement or transaction that is taxed under the loan relationships regime. The regime’s scope is specifically and expressly extended to include certain other arrangements and transactions that are treated as equivalent to debt finance. These, often labelled 'deemed loan relationships', cover arrangements which, though not meeting the strict definition of a 'loan relationship', generate a return that is economically the same as interest (sometimes described as an interest‑like return, i.e. an interest-like return). For further detail on the meaning of loan relationship and the various types of 'deemed loan relationships' within the scope of the loan relationships taxing regime, see Practice Note: Loan relationships—what are they? For the computation rules governing how profits and losses on loan...

There are several situations in which a company’s corporation tax position varies according to its size, e.g. the taxation of distributions, transfer pricing, and research and development reliefs. This Practice Note sets out how the definition of a small company operates in relation to the exemption from tax on distributions received by small companies—see Practice Note: How are small companies taxed on distributions received? The definition also matters for companies that are not small, as alternative rules apply—see Practice Note: How are non-small companies taxed on distributions received? What is a small company? For the purposes of the distribution exemption, a company is treated as small for an accounting period if it qualifies as a small or micro enterprise under the definition in the Annex to Commission Recommendation 2003/361/ EC, dated May 2003. The Commission’s criteria are determined by three specified thresholds or...

The corporate intangible assets regime sets out how a company’s gains and losses on intangible fixed assets ( IFAs) are taxed and relieved. The rules sit in Part 8 of the Corporation Tax Act 2009 ( CTA 2009). In broad terms, an IFA is within this regime if it: meets the asset conditions, and is not a pre- FA 2002 asset For the meaning of pre- FA 2002 asset, see Practice Note: What is a pre- FA 2002 asset? This Practice Note addresses the asset conditions. In outline, an IFA satisfies the asset conditions where it: falls within the tax definition of an IFA or constitutes goodwill, and is not specifically excluded from the corporate intangible assets regime (see Practice Note: Excluded intangible fixed assets) Tax definition of intangible fixed asset An asset is an IFA for a company if it is an...

Ordinarily, distributions take the form of cash dividends paid by a company to its shareholders—essentially a straightforward payment of profits to the company’s owners. However, the corporation tax meaning of distribution differs from the company law concept (see Practice Note: Dividends, distributions and scrip dividends). Why does it matter whether a payment is a distribution? It is vital to establish whether a particular payment by a UK company is a distribution because, if it is: the paying company is not permitted a deduction for the amount in its UK corporation tax computation; and a UK corporate recipient will be chargeable to corporation tax on the amount under CTA 2009, Part 9A, unless the payment falls within one of the specific exemptions—for further detail, see Practice Notes: How are small companies taxed on distributions received? and How are non-small companies taxed on...

Consortium relief Consortium relief describes an extension of the group relief regime that permits losses to be surrendered and claimed between companies that are not sufficiently connected to constitute a group, but where joint ownership of a company creates a consortium. For details on what amounts to a consortium, and wider guidance on consortium relief, see Practice Note: Consortium relief. The categories of losses that qualify for group relief also qualify for consortium relief; see Practice Note: Group relief—types of losses that can be surrendered. As with group relief claims made by members within a loss relief group, the quantum of any consortium relief claim between companies owned by, and members of, a consortium (including through link companies) is capped in specified circumstances. This Practice Note sets out those caps and conditions in the context of consortium relief for current year losses, and for...

This Practice Note focuses on the precise tax meanings of a company with investment business and of an investment company, and not on broader, everyday uses of the term investment company (such as in relation to Family investment companies) or on other vehicles like investment trust companies. For those, see: Tax and investment trusts—overview. What is a company with investment business? A company with investment business is one whose activities consist, in whole or in part, of holding investments. This definition can be broken down as follows: company—covers any body corporate or unincorporated association, but does not include partnerships, co-ownership schemes (as defined in section 235A of the Financial Services and Markets Act 2000 (see Practice Note: Authorised contractual schemes ( ACSs))), local authorities and associations of local authorities (see Practice Note: What is the basis of corporation tax?) ...

As set out in Scope of distributions for tax purposes, distributions fall into four categories: dividends — covering paragraph A, with fuller guidance in Tax—types of distribution—dividends transfers of assets or liabilities — covering paragraphs B and G, with further detail in Tax—types of distribution—transfers of assets and liabilities interest recharacterised as a distribution — spanning paragraphs E and F, with more detail in Types of distribution—interest recharacterised as a distribution: non-commercial securities and Types of distribution—interest recharacterised as a distribution: special securities bonus issues of shares or securities — covering paragraphs C, D and H and discussed further in this note Paragraphs C and D— Redeemable share capital and securities The third and fourth categories comprise the company issuing any redeemable share capital or any securities: in respect of shares in, or securities of, the company; and otherwise than for new...

FORTHCOMING CHANGE relating to the treatment of forex under UK transfer pricing rules: From 1 January 2026, the Finance Bill 2026 introduces a series of updates to the UK transfer pricing framework. Among the measures are changes that bring foreign exchange gains and losses arising on loan relationships and derivative contracts within the main transfer pricing rules, while leaving the tax rules for forex hedging untouched. Previously, such amounts were adjusted under bespoke provisions in the loan relationships and derivatives regimes addressing non‑arm’s length transactions. The changes also broaden the existing loan relationships anti‑avoidance rule in CTA 2009, s 452, to accommodate a new election allowing companies to be treated as guarantors of a non‑arm’s length borrowing for transfer pricing purposes. For further detail, refer to News Analysis: Budget 2025— Tax analysis— International and Tax—publication of Finance Bill 2026. Numerous entries in a...

To decide if a payment or transaction sits within any category of distribution (other than paragraph A (dividends)), it is essential to grasp the idea of new consideration in full. At the widest level, the intended role of new consideration is to make sure the definition of a distribution captures only a genuine distribution of profits, in whatever guise it appears, by stipulating that: payments transfers of assets or of liabilities, or issues of shares or securities for which the paying company receives no fresh value, are treated as distributions for corporation tax purposes, i.e. in situations where the value of the company is diminished and only in those cases. Where is new consideration used?......

Corporation tax Corporation tax is imposed on the profits of a company’s accounting period where the company is within the charge to UK corporation tax. For more on who must pay corporation tax and on what, see Practice Note: What is the basis of corporation tax? The eventual liability is influenced by the profits shown in the relevant company’s accounts for that period, but is also determined by specific tax rules (eg see Practice Note: Taxation of trading profits—basis, receipts and deductions). These tax rules set out, among other things: which types of income and gains are chargeable to corporation tax (eg trading income) what reliefs are available whether those reliefs can reduce: a particular amount of income or gains total profits or the...

This Practice Note: sets out the principal UK tax considerations for a company looking to raise capital through a rights issue, and unless indicated otherwise, proceeds on the basis that: the issuing company is UK incorporated and UK tax resident and, for VAT, is treated as belonging in the UK only new non-redeemable shares are offered as part of the rights issue the shares to be issued are in the same currency as the issuer’s functional currency (ie the currency the company uses to prepare its accounts)—where the functional currency differs from the share currency and certain conditions are satisfied, any profit or loss on a derivative used by the issuer to hedge exchange rate risk is disregarded for...

Practice Note This Practice Note sets out the principal tax considerations where a company facing difficulty repaying external borrowings looks to reorganise and restructure its external debt commitments. Companion Practice Notes in this series address tax matters connected with and arising in relation to: acquisitions of non-performing loans the enforcement of debts Additionally, the checklist ‘ Tax and distressed debt—checklist of points to consider’ summarises the main tax points to bear in mind when dealing with distressed debt more generally......

A core tenet of the corporate intangible assets regime in Part 8 of the Corporation Tax Act 2009 is that companies are charged to tax on dealings in intangible fixed assets by reference to the profits and losses recorded in their financial statements prepared under applicable standards. Put another way, the gains and losses of an IFA under the relevant accounting rules will, as a general rule, drive the credits and debits taken into account for corporation tax within the corporate intangible assets regime. Further, the initial test for whether a particular IFA falls within the ambit of that regime is the accounting-based definition of an intangible asset adopted in the accounts. This Practice Note reviews the accounting framework and principles pertinent to the taxation of IFAs that come within the corporate intangible assets regime, and specifically addresses the...

The capital gains regime allows corporate groups to organise the offset of allowable losses arising in one group company against taxable gains arising in another. The most straightforward route is to elect to move a gain or a loss between companies within the group. That election rests on the premise that group members function, in many ways, as a single economic unit, and that the tax code ought to mirror that reality. The purpose of the provisions is to enable groups to net gains and losses against each other where both the gains and the losses arise within the same group. This treatment is not meant to apply to companies acquired into a group specifically because they already carry losses. The pre-entry loss rules exist to stop groups from cutting their gains by purchasing losses in this fashion. Although intended to counter...

Enhanced relief for R& D-intensive loss-making SMEs (post-1 April 2024) FORTHCOMING CHANGE: R& D tax reliefs advance clearances: Following a first announcement at Autumn Budget 2024 within the government’s Corporate Tax Roadmap, and a consultation issued at Spring Statement 2025, Budget 2025 set out the consultation outcome confirming a pilot of a targeted R& D advance assurance service. This will cover specified aspects of small and medium-sized enterprises’ R& D claims and is scheduled to commence from spring 2026. The pilot will run alongside the current R& D advance assurance. This Practice Note covers the enhanced research and development ( R& D)-intensive support ( ERIS) for R& D‑intensive, loss-making SMEs, applying to accounting periods starting on or after 1 April 2024, subject to transitional provisions. For details of the merged R& D expenditure credit generally applicable for accounting periods beginning on or after 1 April 2024 (the...

For anyone carrying on a trade of developing property in the UK, a primary issue is the UK tax charged on the profits arising from that activity. This Practice Note examines what amounts to a trade and the imposition of UK corporation tax and income tax on trading profits. In this Practice Note, CGT denotes both capital gains tax and corporation tax on chargeable gains. Trading vs investment For companies within the charge to corporation tax, the corporation tax regime governing trading profits generally applies as well to the profits of a trade of property dealing and development. The specific rules for profits from trading in and developing UK land, introduced on 5 July 2016, do not apply where the relevant profit or gain is already brought into account as income for corporation tax purposes. For further details, see Practice Note:...