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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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UK residents with foreign income or gains: corporation tax: Accounting periods ending on or after 3 June 1986 and on or before 5 April 1999; accounting periods beginning on or after 6 April 1999: charges

Accounting periods ending on or after 3 June 1986 and on or before 5 April 1999

Stage 1

Calculate the Corporation Tax (before any set-off for Advance Corporation Tax (‘ACT’) or any credit for foreign tax) on the company’s total profits for the accounting period in which the income or chargeable gain arises (the relevant accounting period).

Stage 2

Allocate the charges etc. between the various items of income or gains making up the total profits. Apportion the tax calculated as in Stage 1 by applying to the amount of the income or gains from each source the rate of Corporation Tax payable by the company on its income or chargeable gains for that period. The rate will be the general Corporation Tax rate for the period or, where appropriate, the small companies’ rate or the `marginal rate’.

In practice, in order to minimise the company’s final tax charge, deduct the charges etc. first against income or gains which have not suffered any foreign tax. Deduct any balance of charges etc. against the income or gains which have suffered foreign tax in such a way as to give tax credit relief for as much foreign tax as possible.

Stage 3

Deduct from the Corporation Tax attributable to each item of foreign income or gains calculated as in Stage 2 the lesser of the foreign tax payable on the particular item of income concerned and the Corporation Tax attributable to the income or gain after deducting the charges etc.

Stage 4

Deduct from the Corporation Tax attributable to each item of income or gains after deduction of the tax credit relief the appropriate amount of Advance Corporation Tax (if any) attributable to that item (see INTM167110).

See example 2 in INTM167350.

Accounting periods beginning on or after 6 April 1999

The requirement for UK resident companies to account for and pay ACT was abolished for distributions made on or after 6 April 1999. Relief for any amount of unrelieved surplus ACT (‘USACT’) at 6 April 1999 of a company, or of a company in the same group, is subject to the shadow ACT regulations of SI1999/358.

The principles with respect to DTR and ACT in step 4 will, nevertheless, apply to any amount of USACT which is utilised in accordance with the shadow ACT regulations for accounting periods beginning on or after 6 April 1999. SeeCTM18670 as regards the interaction of USACT and DTR.