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HMRC internal manual

Company Taxation Manual

ACT: tax credit & FA93: rate of tax credit

The amount of tax credit to which a UK resident recipient of a qualifying distribution other than a FID was entitled remained an amount equal to the rate of ACT applied to the distribution.

There was an exception. Where the rate of ACT was calculated at the rate fixed for financial year 1993 of 9/31, the amount of tax credit was calculated as if the ACT rate had instead been 1/4, (FA93/S78 (3)).

This rule would have given an unsatisfactory result if a company received a dividend and then paid an equivalent dividend. The tax credit at 1/4, with an ACT rate of 9/31, would have resulted in the franked investment income being less than the franked payment.

To ensure that a dividend could pass through a company without a further liability to ACT arising, this rule was not applied for calculating franked investment income for 1993-94 so that the tax credit was calculated at the rate of 9/31 (FA93/S78 (4)(a).

However, this disapplication of the rule would have meant that if a company made a ICTA88/S242 or ICTA88/S243 claim to set losses etc against franked investment income of 1993- 94 in order to obtain payment of the tax credit (CTM16200), it would have received payment of tax credit at more than the desired rate of 1/4. So when a tax credit comprised in franked investment income of 1993-94 was paid to a company, the tax credit was recalculated at the rate of 1/4 for the purposes of payment to the company, (FA93/S78 (4)(b)).