What does section 554A of the Corporation Tax Act 2010 define?

Section 554A broadens the definition of a distribution for the purposes of Chapter 6 of the Corporation Tax Act 2010. It ensures that share capital issued in lieu of a cash dividend, such as scrip dividends or stock dividends, is treated as a distribution in the same way as a normal cash dividend payment.

How are scrip dividends treated under section 554A of the Corporation Tax Act 2010?

Under section 554A, when a company offers shareholders newly issued shares instead of paying a cash dividend, the issue of those shares is treated as a distribution for all purposes of Chapter 6. This means the same rules that apply to cash dividends under this Chapter also apply to shares received in lieu of cash.

Where is 'share capital issued in lieu of a cash dividend' defined for section 554A purposes?

The precise definition is not contained in section 554A itself. Instead, the section directs you to section 1051, subsections (2) to (4), of the Corporation Tax Act 2010. The same criteria used to identify shares issued in place of a cash dividend under the stock dividend rules in section 1049 apply consistently here.

What is the practical effect of section 554A on corporate shareholders receiving shares instead of cash dividends?

If a corporate shareholder elects to receive newly issued shares rather than a cash dividend, section 554A ensures those shares are treated as a distribution under Chapter 6. This means the distribution rules, including any exemptions or charges applicable to cash dividends, apply equally to the share capital received in lieu of that cash dividend.

Corporation Tax Act 2010 section 554A

Meaning of distribution

Section 554A defines what counts as a distribution for the purposes of Chapter 6, extending the meaning to include share capital issued instead of a cash dividend.

For the purposes of Chapter 6, a distribution includes share capital issued in lieu of a cash dividend.
This means that where a company offers shareholders new shares instead of paying a cash dividend, this is treated as a distribution.
The detailed definition of "share capital issued in lieu of a cash dividend" is taken from section 1051(2) to (4) of the same Act.
This ensures that scrip dividends and similar arrangements are brought within the scope of the distribution rules in this Chapter.

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