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HMRC internal manual

Company Taxation Manual

Distributions: impact on Corporation Tax: franked investment income under the ACT system abolished from 6 April 1999: surplus - claims under ICTA88/S242

ICTA88/S242 (1), (9), & ICTA88/S244 (1)

Surplus franked investment income (FII) is an excess of FII that a company has received over franked payments (FP) the company has made in the accounting period.

For accounting periods beginning before 2 July 1997, a company could claim under ICTA88/S242 (see CTM16220) to treat the surplus as a like amount of profits within the charge to CT. What this means in practice is that:

  • certain unused reliefs (losses etc) (see CTM16220) can be set against the surplus FII,


  • the tax credit attached to the surplus FII is then paid to the company,


  • the surplus FII (for ICTA88/SCH13 purposes) and unused reliefs carried forward to the next accounting period are reduced accordingly.

A claim under ICTA88/S242 must exclude any surplus FII the company has brought forward from earlier accounting periods. It must also exclude any FII that the company has set off against FP of a later accounting period. There is an example of a claim under ICTA88/S242 in CTM16210.

Special rules apply for claims involving FII of 1993-94 (see CTM20535).

A company may make FP and receive FII on various dates throughout an accounting period. It may be necessary to analyse these transactions by reference to the ICTA88/SCH13 return periods to find when surplus FII arose. This will be relevant in considering whether a surplus arose before or after 5 April where the rate of tax credit has changed (see CTM16215).