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Distributions will be exempt if they fall within one or more of the five exempt classes as summarised in D5.152. One of these is where the distribution is derived from a transaction not designed to reduce tax¹.

A distribution falls into this exempt class if it is paid in respect of 'relevant profits'. Relevant profits are any profits available for distribution at the time the distribution is paid, other than profits which are herein described as 'tainted profits'. Tainted profits arise from a transaction (or series of transactions) which achieve a reduction in UK tax (see below), which is not negligible, and the purpose, or one of the main purposes, of the transaction was to achieve that reduction².

Negligible is not defined in the legislation but HMRC has provided guidance in relation to the small company distribution exemption which notes that the factors to be considered are:

1. Ìý

   •ÌýÌýÌýÌý the tax advantage in relation to the size of the company or group of companies

2. Ìý

   •ÌýÌýÌýÌý the absolute