CTM15550 - Distributions: general: companies not carrying on a business

ICTA88/S490 (4) applies where a company has never carried on a trade or a business of holding investments.

The distributions legislation applies to such a company only in respect of distributions that are made out of:

• profits that are charged to CT (less the CT on those profits),

• franked investment income,

• FID for distributions made prior to 6 April 1999.

This provision is important in relation to distributions of unincorporated associations (see CTM15540) which are not carrying on a business of mutual trading (see BIM24000 onwards).

Only bodies corporate can make an election under ICTA88/S247 to pay dividends prior to 6 April 1999 without having to account for ACT (see CTM80085). ACT is not payable by the company on distributions made on or after 6 April 1999. Unincorporated associations are not bodies corporate.

There is no requirement that the recipient of the dividends should be a trading or investment company. This is, however, subject to ICTA88/S247 (5), which provides that, for distributions made prior to 6 April 1999, ICTA88/S247 (1) does not apply to dividends paid to:

• a company that holds as trading stock the shares in respect of which the dividend is paid,

• a company that is (leaving aside the operation of ICTA88/S235 or ICTA88/S237) entitled by way of any exemption to payment of the tax credit.

You should make a report to CTIAA (Technical) regarding any ICTA88/S247 election involving a body corporate within ICTA88/S490.