Usually capital. The case law is very clear on this and if you use tax credits example you would need to overturn this. On the final point what often happens is this…the director borrows money on a monthly or irregular basis and owes the company. This debt is cleared by the declaration of a yearly dividend. You could argue this is income but the trouble is that this is just an accounting mechanism used by some accountants and not others. All dividends should really be counted as income I think but as I say caselaw is not on our side. We are dealing with such old legislation….very few if any company directors claimed hb when the hb regs were written. Wider tax and company law has changed over the last 35 years but the dear old hb scheme remains the same. So we are mainly stuck with the counts as capital
