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HMRC internal manual

Company Taxation Manual

ACT: FID: general: background

The FID legislation was repealed with effect from 6 April 1999. It was intended to  provide some help in relieving the long-standing problem of surplus ACT for companies wanting to pay dividends out of foreign source profits. In doing this it also made the UK a more attractive place in which multi national businesses could locate International Headquarters Companies (IHCs).

Companies that make profits abroad and have suffered foreign tax will be entitled to double taxation relief. This may not have left enough CT to set off the entire ACT on dividends paid out of those profits. In an extreme case, all of a company’s profits may arise overseas and suffer foreign tax in excess of the UK CT rate. After deducting double taxation relief there may have been no CT left to set off any ACT, leaving surplus ACT.

From 1 July 1994 a company could elect that a cash dividend it paid was an FID. ACT was payable on this FID. If the company could match the FID with distributable foreign profits, it could claim set off or repayment of all or part of any surplus ACT arising in respect of the FID. In addition a company which thought it satisfied the definition of an IHC did not account for ACT when it paid an FID, though it may have had to pay the ACT subsequently.

A FID was not a franked payment, but came within the ICTA88/SCH13 machinery provisions and was returned separately on form CT61. The FID and franked payment accounting procedures ran in parallel.

A corporate shareholder used an FID received to frank an FID paid in the same way that franked investment income was set off against franked payments.

An FID did not carry any tax credit.