A Dividend With A Purpose?

Tax Case

A Dividend With A Purpose?

THE CIRCUMSTANCES OF Forthright (Wales) Limited v Davies [2004] STC 875 were referred to by Ken Moody in his article 'Houses of Straw' (Taxation 2 December 2004 page 230) although his article then went on to deal with the implications of remuneration via dividends rather than the eligibility of a share issue to enterprise investment relief.

Background

Forthright Limited was formed to provide management services to a firm of chartered accountants and it took over the business of a previous company that had carried out the same function. Forthright commenced trading in April 1998 and took over loans and overdrafts from its predecessor totalling £161 046. On the same day the company issued 299 998 shares at £1 each and the cash proceeds received were used to repay those liabilities and £81 350 of trade...