Part IIU.K. Income Tax, Corporation Tax and Capital Gains Tax

CHAPTER IU.K. General

Close companiesU.K.

[F1106 Restriction on payment of tax credits.U.K.

(1)In section 231 of the Taxes Act 1988 (tax credits for certain recipientsof qualifying distributions) in subsection (3) after the words “made and”there shall be inserted the words “subject to subsections (3A) to (3D)below” and after that subsection there shall be inserted—

“(3A)Subject to subsection (3B) below, where it appears to the inspector that,in any accounting period of a company at the end of which it is a closeinvestment-holding company—

(a)arrangements relating to the distribution of the profits of the companyexist or have existed the main purpose of which or one of the main purposesof which is to enable payments, or payments of a greater amount, to be madeto any one or more individuals under subsection (3) above in respect of suchan excess as is mentioned in that subsection, and

(b)by virtue of those arrangements, any eligible person—

(i)receives a qualifying distribution consisting of a payment made by thecompany on the redemption, repayment or purchase of its own shares, or

(ii)receives any other qualifying distribution in respect of shares in orsecurities of the company, where the amount or value of the distribution isgreater than might in all the circumstances have been expected but for thearrangements,

the entitlement of the eligible person to have paid to him undersubsection (3) above all or part of a tax credit in respect of anydistribution made by the company in the period shall be restricted to suchextent as appears to the inspector to be just and reasonable.

(3B)Subsection (3A) above does not apply in relation to a tax credit inrespect of a dividend paid by a company in any accounting period in respectof its ordinary share capital if—

(a)throughout the period, the company’s ordinary share capital consisted ofonly one class of shares, and

(b)no person waived his entitlement to any dividend which would have becomepayable by the company in the period or failed to receive any dividend whichhad become due and payable to him by the company in the period.

(3C)In subsection (3A) above—

• “arrangements” means arrangements of any kind whether inwriting or not,

• “close investment-holding company” has the meaning given bysection 13A, and

• “eligible person”, in relation to a qualifying distribution,means an individual resident in the United Kingdom who would (apart fromsubsection (3A) above) be entitled to have paid to him under subsection (3)above all or part of a tax credit in respect of the distribution.

(3D)In determining under subsection (3) above whether a person is entitled tohave any excess of tax credit paid to him in a case where subsection (3A)above applies, tax credits shall be set against income tax in the order thatresults in the greatest payment in respect of the excess.”

(2)This section shall have effect in relation to distributions made bycompanies in accounting periods beginning after 31st March 1989.]