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HMRC internal manual

Company Taxation Manual

Groups & consortia: consortia - group income: election - to pay dividends without ACT

ICTA88/S247 (1)(b) allows a ‘company owned by a consortium’ to elect to pay dividends, but not other qualifying distributions, to a member of the consortium of companies which owns it without having to account for ACT in respect of those dividends paid before 6 April 1999. No ACT is payable in respect of any distribution made on or after 6 April 1999.

A ‘company owned by a consortium’ means:

  • a trading company owned directly by the consortium,or
  • a holding company owned directly by the consortium.

A ‘holding company’ is a company whose business consists wholly or mainly in the holding of shares or securities of companies, which are:

  • its 90% subsidiaries, and
  • companies whose business consists wholly or mainly in the carrying on of a trade or trades.

A 90% subsidiary is a company whose parent directly owns at least 90% of its ordinary share capital (ICTA88/S838 (1)(c)). ‘Ordinary share capital’ and ‘owned’ are defined at ICTA88/S832 (1) and ICTA88/S838 (3).

There is guidance on the meaning of ‘member’ of a consortium at CTM80915.

If the conditions of ICTA88/S247 (1)(b) are satisfied, an election may be made between the company owned by the consortium and members of the consortium with 50% of the shares or with minority shareholdings (that is, less than 50%). This applies even if:

  • the company is also a 51% subsidiary of one of the other members of the consortium, and
  • both the other member of the consortium and the company owned by a consortium are in a position to make an election under ICTA88/S247 (1)(a).

Dividends paid prior to 6 April 1999 in accordance with an election under ICTA88/S247 (1) are ‘group income’ in the hands of the recipient. No tax credit attaches to them and they cannot be used to cover franked payments made by the recipient for the purposes of arriving at the recipient’s liability to ACT.

There is guidance on:

  • the conditions and procedures for elections at CTM80915 onwards, and
  • dividends paid by subsidiaries to their parent companies or fellow subsidiaries at CTM80070.

ICTA88/S247 (3) enables a company to account for ACT on:

  • a dividend, or
  • part of a dividend,

paid before 6 April 1999 to a company which is party to the election, in spite of the existence of a valid election under ICTA88/S247 (1). Form CT61(Z) provides for such a dividend, etc, to be shown separately. No other notification to the Collector under ICTA88/S247 (3) was necessary.


Suppose the rate of ACT was 20/80. A consortium owned Company J. There were valid elections under ICTA88/S247 (1) in respect of Company J and the members of the consortium that owned it. Company J received franked investment income of £7,500 (dividend of £6,000 plus associated tax credit of £1,500). Company K was one of the members of the consortium, and could make use of the franked investment income.

Company J paid a dividend of £10,000 prior to 6 April 1999 to Company K. Company J can choose to treat part of the dividend it paid to Company K as a franked payment up to the amount of the franked investment income Company J received. If so, Company J treats £6,000 of the dividend it paid to Company K as a franked payment of £7,500. Company J did not pay ACT on that part of the dividend because there was no excess of franked payments over franked investment income. (Note that no ACT was payable on the £4,000 remainder of the dividend, which was covered by the ICTA88/S247 (1) election.) However, Company K received franked investment income of £7,500 (not group income) from Company J, and that franked investment income was available to cover franked payments made by Company K.

An election under Section 247 (1) cannot apply to an FID. When a company elects for a dividend to be treated as an FID and a Section 247 (1) election is in place, the FID election is treated as notice under Section 247 (3) (CTM21120). 

Guidance on elections involving companies that are not trading, or investment companies, is at CTM15550.

Guidance on the recovery of ACT where it ought to have been paid is at CTM80090.