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HMRC internal manual

International Manual

HM Revenue & Customs
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Foreign tax paid on trade income: limitation on credit: Subsequent years

The profit attributable to foreign income should be determined by the same method year by year unless there is good and sufficient reason to do otherwise. A method of allocation should not be changed merely because in a particular year some other method gives more or less favourable results.


  1. If the profit attributable to income on which foreign tax has been paid is 40% of the total profit of the trade, then if the balance of UK and foreign income remain roughly the same, it may be reasonable to apply the same percentage to total profits in subsequent years.
  2. If the profit attributable to taxed income is 30% of that income, then if the profitability of the foreign business remains more or less stable, then it may be reasonable to assume that the same percentage will apply in subsequent years.

The method should be reviewed periodically, for instance at 5 year intervals, to ensure that the underlying assumptions remain valid.