176A Purchase of own shares –supplementary.

Summary

This section makes a technical amendment to Chapter 9 of Part which deals with taxation issues relating to the acquisition by a company of its own shares. These are usually referred to as “share buy-backs”. The section clarifies that, apart from the purchase of shares at arm’s length by a company for its employees, costs incurred by a company in buying back its own shares are not allowed as a deduction against profits for tax purposes.

Details

(1) Sums incurred by a company in purchasing its own shares are not allowed as a deduction under Case I or Case II in computing profits. Section 175 (re purchase by quoted companies) and section 176 (re purchase by unquoted companies) provide that share buy-backs are not treated as distributions.

(2) The section confirms that certain payments that are deductible under section 81(2)(n)(i) remain deductible. These payments include payments at market value made by a company to another company to issue shares to the first company’s employees, the purchase of shares at arms length by a company for its employees and the payment by a company to a connected company to issue share options to its employees. The latter deduction is subject to the rule that the expenditure must be uncured for genuine commercial reasons and not as part of any tax avoidance scheme.

Relevant Date: Finance Act 2021