What does section 383 of ITTOIA 2005 do?

Section 383 establishes the basic income tax charge on dividends and other distributions made by UK resident companies. It originates from the former Schedule F charge and ensures that whenever a UK resident company pays a dividend or makes any other distribution, the amount is subject to income tax in the recipient's hands.

Are dividends from UK companies always treated as income for tax purposes?

Yes. Under section 383, all dividends and distributions from UK resident companies are treated as income for income tax purposes. This applies even where a distribution, such as a capital dividend, would otherwise be regarded as capital in nature. The section overrides any alternative characterisation of the payment.

Where is the term 'distribution' defined for the purposes of section 383?

The term 'distribution' is not defined within ITTOIA 2005 itself. Instead, it takes its meaning from corporation tax legislation, where the concept is critical — for example, distributions are not deductible expenses for the paying company. A separate income tax definition was not considered practical as it would create similar but not identical provisions.

Are dividends received by a securities dealer taxed under section 383?

No. If a distribution is received as a trading receipt — for example, by a dealer in securities — it is not taxed under section 383. Instead, it falls within the trading income rules and is taxed as part of the recipient's trading profits. The same principle applies to Lloyd's underwriters for assets held in ancillary trust funds.

Income Tax (Trading and Other Income) Act 2005 section 383

Charge to tax on dividends and other distributions

Section 383 establishes the income tax charge on dividends and other distributions made by UK resident companies, and confirms that such amounts are always treated as income for tax purposes.

Income tax is charged on all dividends and other distributions made by UK resident companies.
These dividends and distributions are treated as income for all income tax purposes, even if they would otherwise be regarded as capital in nature.
Where a distribution is received as part of a trade (for example, by a securities dealer), it is taxed as trading income under the trading income rules rather than under this provision.
The definition of "distribution" is not contained in this Act but is drawn from corporation tax legislation, reflecting the term's wider importance across the tax code.

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