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HMRC internal manual

International Manual

UK residents with foreign income or gains: dividends: Dividends received by UK companies on or after 31 March 2001 - the mixer cap

TIOPA10/S57 allows credit relief to be given for underlying tax against UK tax payable on a dividend. In the past this has solely been limited to the amount of foreign tax borne on the relevant profits by the company paying the dividend as is properly attributable to the proportion of those represented by the dividend.

Finance Act 2000, as amended by Finance Act 2001, introduced a further limitation. What is now S57(2) means that for any dividend paid by a company outside the UK to a UK recipient on or after 31 March 2001 the amount of underlying tax taken into account with respect to any dividend will not exceed the answer produced by the following formula set out in TIOPA10/S58.

(D+PA) x M%

where

  • D is the dividend,
  • PA is the amount of that is and
  • M is the CT rate when the dividend was paid (30% in 2000).

The cap relates only to underlying tax. If the country in question imposes a withholding tax, this is not included at that level, as it is not a tax borne on the relevant profits by the company paying the dividend. It is borne by the recipient. But if the dividend then passes through an intermediate company, it becomes underlying tax of that company and would be included at that level for the purposes of calculating the mixer cap there.

The actual underlying tax paid is added to the dividend received by the UK company to arrive at the amount of income to be taken into account for foreign income purposes under S31. This is so even if only a capped amount is to be allowed as credit.

S42 still applies to limit the amount of foreign credit to the amount of UK tax payable on that foreign income.

The provisions apply to any DTR claim made on or after 31 March 2001 on a dividend paid by a non-resident company to a UK company, unless the dividend was paid before that date. If that claim includes underlying tax from another company further down the chain the cap applies even if that subsidiary’s dividend was itself paid before 31 March 2001.

The cap is not applied where dividends are mixed within the same country, subject to detailed Regulations (SI2001/1162).

For mixed dividends the UTG will calculate both the mixer cap and the amount of Case B Eligible Unrelieved Foreign Tax (EUFT - see INTM164230 onwards). Relevant guidance can be found at:

INTM164440: information UTG require

INTM164460: what the UTG will give the local tax office

INTM164470 onwards, for examples of the credit relief calculation for a dividend received on or after 31 March 2001

The legislation relating to EUFT was repealed for distributions paid on or after 1 July 2009.