ICTA88/S209 (2)(b) applies the distributions legislation
to:
or
Part of a payment by a company to redeem or purchase its own
shares should be viewed as a repayment of share capital, and
therefore not a distribution. Any new consideration received by the
company when the purchase of own shares occurs is also excluded.
It is necessary to establish the amount of the share capital
repaid when a company carries out a purchase of own shares.
In order to do this it is necessary to look at the company's
share history. Particular points to consider are the issue of
shares at a premium (see
CTM17520) and a previous bonus issue
(see
CTM17530).
The position is complicated if the shares that are the
subject of the purchase of own shares were issued in exchange for
shares in another company.
It is necessary to establish the amount of new consideration
the company received when issuing the shares that are the subject
of the purchase of own shares.
The relevant legislation is in ICTA88/S254. ICTA88/S254 (6)
and (7) restrict new consideration derived from share capital in,
or securities of, the same company. Hence, a company can recognise
as new consideration the full value of shares in another company
that it receives in exchange for the issue of fresh share capital
or securities, see
CTM15140.
Therefore, when a company receives shares in an acquired
company in exchange for an issue of its own shares, the new
consideration received by the first company is the market value of
the shares in the acquired company.
This may result in the company receiving sufficient new
consideration to establish a premium. If so, the premium is treated
as part of the share capital when considering the amount of any
repayment of share capital (ICTA88/S211 (5)).
Where a company is proposing to make a purchase of own
shares, it may ask you to agree the amount that will be a
distribution. However, you do not have to agree figures in advance.
If the company is in doubt about the amount of any qualifying
distribution made before 6 April 1999, it should return the payment
under ICTA88/SCH13/PARA7. You should raise an assessment if
necessary (see
CTM22110). The Accounts Office will send
you a copy of the form CT61 so you can consider raising an
assessment (see AC4120).
When an unquoted company is involved it may be fairly simple to
identify the issue price of the shares which are the subject of a
purchase of own shares.
However, for quoted companies it may be less straightforward,
or even impossible, to identify the issue price of shares involved.
For example, a company may have issued unnumbered shares or the
company may have made numerous issues, possibly at different
premia.
In such cases you may accept any reasonable basis of
calculation (such as averaging) of the issue price that the company
may provide, subject to CTM17520 and CTM17530.
Where ICTA88/S219 does not apply the distributions provisions
will operate. The sale price in the vendor's hands will
represent:
and
This income distribution will represent:
and
Where the vendor is a dealer, however, see
CTM17630.
If you think a company is carrying out a purchase of own
shares for tax avoidance purposes, and the tax at stake exceeds
£50,000, you should refer the file to Clearance and
Counteraction Team, Anti-Avoidance Group with a brief report.
Prior to 6 April 1999, companies paying ACT in respect of distributions arising from a purchase of own shares could surrender that ACT under ICTA88/S240, in the same way as if it were ACT in respect of a dividend (see CTM81200 onwards).
