HMRC internal manual

International Manual

UK residents with foreign income or gains: dividends: Dividends received by UK companies on or after 31 March 2001 - eligible unrelieved foreign tax - Case A

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.

The legislation relating to EUFT was repealed for distributions paid on or after 1 July 2009.

Example 1

Company A in country A has received a dividend from its subsidiary B in country B of 75 in respect of which B has paid 25 underlying tax.

On payment to A withholding tax of 3.75 (5%) was deducted.

A pays the net receipt of 71.25 as a dividend to the UK company, less withholding tax of 7.12.

Use this link to view example diagram


The UK receives cash of 64.13.

Underlying tax of 28.75 has been paid (the first withholding tax, imposed by country B, is underlying tax in relation to company A). This equates to a rate of 28.75%, which would be notified by the Underlying Tax Group to the Tax Specialist.

Throughout this period the corporation tax rate is 30%, so the mixer cap does not operate at any stage.

Under ICTA88/S795 the tax computation is:

Dividend 64.13
plus withholding tax 7.12
plus underlying tax 28.75
Taxable 100.00


Corporation tax charge: 100 x 30% = 30.00


Foreign tax: £
Underlying tax 28.75
Withholding tax 7.12
Total foreign tax 35.87
Creditable 30.00


If the CT rate had been 45%, the UK tax liability would have been 100 x 45% = 45.00 and up to 45.00 foreign tax could be credited.


All of the foreign tax could have been taken into account.

Only 30.00 has actually been taken into account so Case A EUFT is the difference, 5.87. For the purposes of giving relief this is underlying tax of 28.75 and withholding tax of 7.12.

Case A EUFT will also arise where some foreign tax cannot be taken into account because of small companies rate or losses in the company.

Example 2

A UK company receives a dividend of 70. The underlying rate of tax on this is notified by the Underlying Tax Group as 30%. The company also has trading losses in the year of 50.

The Corporation tax computation is

Dividend 70
Underlying tax 30
Less losses (50)
Corporation tax @ 30% 15
Foreign tax credit (15)


The rate of corporation tax payable in actuality on the foreign dividend is 15%. If the rate payable were 45% the amount of UK liability would be 45.00 and up to 45 foreign tax could be credited.

Therefore the amount of Case A EUFT arising is 30.00 (the amount paid) less 15.00 (the amount actually allowed), i.e. 15.00.