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

ICTA88/S231 (1) & (1A), ICTA88/S238 (1)

When a UK resident company makes a qualifying distribution to any UK resident, the recipient is entitled to a tax credit.

Note, however, that FID did not entitle the recipient to a tax credit (see CTM21000 onwards). FID were abolished with effect from 6 April 1999.

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

For qualifying distribution made on or after 6 April 1999, the tax credit fraction is one-ninth.

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

This FII is equal to:

• the amount or value of the distribution (excluding any FID),

• the amount of the tax credit.

Note that the distribution is not FII if the company receives it on behalf of or in trust for another person.

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

An FID received by a company did not give rise to FII. This is because a FID did not carry a tax credit.