Non-corporate distributions: HMRC changes its view

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HM Revenue and Customs has published revised guidance on the application of non-corporate distribution rate (NCDR) where there are "excess" distributons.

The new guidance replaces the Inland Revenue's original guidance, published last September, which is now included in a revised version of the Company Tax Manual to be published today, 26 April.

HMRC announced on 25 April that having taken legal advice, in the light of some articles in the taxation press which questioned some of the guidance at CT3002, "we now consider that part of that guidance is incorrect, though this was discovered too late to halt the publication [of the updated manual]".

The announcement is intended to highlight the change of view and "give a corrected version of the relevant paragraphs until such time as the manual can...

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29th Apr 2005 18:27

This needs challenging!
Reverting to comments in many previous postings, s.13AB(1) gives effect to the NCD rules if NCDs have been made (or treated as made) AND [not OR] underlying CT rate is less than CT rate. The Revenue really seem to have a problem with what they believe to be mutual exclusion. If in the HMRC example the company makes NCDs of £250k in second period, in addition to £30k b/fwd, yes there will have been (excess) NCDs in that later period. However, the second requirement, that underlying CT rate is less than NCD rate, is not met and so NCD rules cannot apply.

It is interesting to note that although HMRC refer to the situation re £250k profits, the example to be provided in the Manual does not deal with this situation - I would like them to set out the numbers and thus explain their reasoning.

Manuals are not legally binding and so I wonder if any other readers share my views.

I also agree with Rebecca - the Revenue's own confusion only strengthens my comments in earlier postings regarding the anomalies in this legislation - zero profits, disapplication of starting rate etc - which lead to the conclusion that it should be scrapped.

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26th Apr 2005 14:50

What hope is there?
for the small company to calculate the NCD correctly when HMRC can't even get it right.

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