As a general principle, when a company makes a purchase of its own shares, any payment in excess of the amount of capital originally subscribed for the shares is treated as a distribution (taxed as income not a capital gain). However, there are special provisions that enable an unquoted trading company or an unquoted holding company of a trading group to undertake a purchase of its own shares without making a distribution.In order to do this a clearance application needs to be made to HMRC. Under this procedure a company wishing to make a purchase of its own shares can obtain advance confirmation from HMRC that the distribution arising will be an exempt distribution. The issues that need to be considered are complex and it is best to obtain professional advice.Planning note:If the application is approved, the payment is treated as consideration for the disposal of the shares in the hands of the seller and subject to Capital Gains Tax (CGT). Where entrepreneurs’ relief is available CGT of 10% is payable in place of the standard CGT rate. There are a number of qualifying conditions that must be met in order to qualify for the relief. Where the necessary conditions are met a company purchase of own shares can be a tax efficient way to release capital from your business without paying punative Income Tax or dividend tax rates.