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Revenue revises view on distributions rule

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8th Nov 2005
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HM Revenue & Customs has revised its view of how some of its distributions legislation is applied.

The change concerns S209(4) ICTA 1988, which treats assets and liabilities as distributions where a company transfers them at undervalue to shareholders. Until now, HMRC has held the view that this provision applies when the assets in question include cash. However, in the light of some current litigation it's involved in, HMRC has changed its mind.

"Counsel has advised that the view is incorrect, and that in S209(4), assets do not include cash," said a recent Revenue statement. "HMRC accepts Counsel's advice, and will now adopt the revised view. This brings the view of HMRC into line with the view taken by some external tax professionals." The updated Company Taxation manual - due to be rewritten shortly - will include HMRC's revised view.

The Tax Faculty at the Institute of Chartered Accountants of England & Wales has pointed out that the revised interpretation means section 339 (1)(a) ICTA 1988 will need to be repealed, as it treats a company cash donation to a charity as not being a 'qualifying donation' if it is treated as a distribution under section 209(4). "As it can no longer be treated in this way it will always potentially be a 'qualifying donation' subject to the other necessary conditions being satisfied," says the Faculty.

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