CTM16120 - Distributions: impact on Corporation Tax: franked investment income - general

When a UK resident company makes a qualifying distribution to any UK resident, the recipient was entitled to a tax credit until these were abolished by FA16/SCH1.

In the meantime, important changes to the 바카라 사이트˜imputation바카라 사이트™ system introduced by FA72/PART5 were made by FA(2)97 and FA98. The tax credit was reduced but at the same time for individuals special dividend rates of charge were introduced which broadly ensured continuity of effect (for instance, a basic rate taxpayer바카라 사이트™s liability was satisfied by the credit).  However, the credit was no longer repayable in the absence of income tax liability.  For companies, the elaborate system of comparing franked investment income received with franked payments made described in the following paragraphs was swept away, together with group income elections.

Foreign Income Dividends did not entitle the recipient to a tax credit, see CTM21000 onwards.  The ACT system together with FIDs was abolished with effect from 6 April 1999.

The tax credit was formerly (in the case of distributions made before 6 April 1999) equal to that proportion of the amount or value of the distribution as corresponded to the ACT rate for the year in which the distribution was made. For 1993-94 slightly different rules applied, see CTM20530 onwards.

For qualifying distributions made on or after 6 April 1999, until abolition in FA16 the tax credit fraction was one-ninth.

Where the recipient was a UK resident company, the company normally received franked investment income (FII).

This FII was equal to:

  • the amount or value of the distribution (excluding any FID), plus
  • the amount of the tax credit.

The distribution was not FII if the company received it on behalf of or in trust for another person.

See CTM80070 regarding the situation where a company paid dividends before 6 April 1999 under ICTA88/S247 without accounting for ACT.

A FID received by a company did not give rise to FII as a FID did not carry a tax credit.

The significance of receiving FII was greatly reduced following the abolition of the ACT system.  It featured in marginal small profits relief calculations.