BIM24615 - Meaning of trade: mutual trading and members clubs: distributions on winding-up: statute: what is taxed?

S104 Income Tax (Trading and Other Income) Act 2005, S101 Corporation Tax Act 2009

The charge under these provisions applies where:

  1. a body corporate which has at any time carried on a trade consisting of or including mutual business (whether or not confined to its members) is being or has been wound up or dissolved;
  1. a person receives money or money’s worth representing assets of the body corporate; and
  1. the assets represent profits of the body corporate’s mutual business.

For the purposes of (2) above, money or money’s worth represents assets of the body corporate if:

(a) it forms part of the body corporate’s assets;

(b) it forms part of the consideration for the transfer of assets of the body corporate as part of a scheme of amalgamation or reconstruction which involves its winding-up; or

(c) it consists of the consideration for a transfer or surrender of a right to receive anything within (a) or (b) and does not otherwise give rise to a charge to Income Tax or Corporation Tax on the recipient.

If the recipient of such money or money’s worth has previously made any payment to the body corporate for which the recipient was allowed a deduction in calculating the profits of its trade then the amount or value of the money or money’s worth is treated as a receipt in calculating the profits of the trade. If the recipient is no longer carrying on the trade, the amount or value is treated as a post cessation receipt (see BIM90000).

Where the transfer or surrender at (c) above is not at arm’s length, you should substitute the value of the right to receive the distribution for the consideration actually paid.