Finance Act 1994

Part IV Other provisions

Penalties

10 In the first column of the Table in section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalties for failure to furnish particulars etc.) the following entry shall be inserted after the entry relating to section 234 of the principal Act—

“section 246H;”.

Small companies' relief

11 (1) Section 13 of the Taxes Act 1988 (small companies' relief) shall be amended as follows.

(2) In subsection (7) (definition of profits for purposes of small companies' relief) after “companies within the group” there shall be inserted “and with the addition of foreign income dividends arising to the company”.

(3) The following subsection shall be inserted after subsection (8)—

“(8A) In this section “foreign income dividends” shall be construed in accordance with Chapter VA of Part VI.”

Expenses of management

12 (1) Section 75 of the Taxes Act 1988 (expenses of management: investment companies) shall be amended as follows.

(2) In subsection (2) after “franked investment income,” there shall be inserted “foreign income dividends,”.

(3) The following subsection shall be inserted after subsection (5)—

“(6) In this section “foreign income dividends” shall be construed in accordance with Chapter VA of Part VI.”

Group income

13 In section 247 of the Taxes Act 1988 (dividends etc. paid by one member of a group to another) the following subsection shall be inserted after subsection (5)—

“(5A) Subsections (1) to (3) above shall not apply to foreign income dividends; and “foreign income dividends” shall be construed in accordance with Chapter VA of Part VI.”

Mutual business etc.

14 (1) Section 490 of the Taxes Act 1988 (companies carrying on a mutual business or not carrying on a business) shall be amended as follows.

(2) In subsection (1) after “(including group income)” there shall be inserted “or out of foreign income dividends”.

(3) In subsection (4) after “franked investment income” there shall be inserted “or foreign income dividends”.

(4) The following subsection shall be inserted after subsection (4)—

“(5) In this section “foreign income dividends” shall be construed in accordance with Chapter VA of Part VI.”

Discretionary trusts

15 In section 687 of the Taxes Act 1988 (payments under discretionary trusts) in subsection (3) the following paragraph shall be inserted after paragraph (aa)—

“(aaa) the amount of tax at a rate equal to the difference between the lower rate and the rate applicable to trusts on any sum treated, under section 246D(4), as income of the trustees;”; and in paragraph (a) of that subsection after “(aa)” there shall be inserted “, (aaa)”.

Personal representatives

16 In section 701 of the Taxes Act 1988 (interpretation of Part XVI) in subsection (8) (meaning of aggregate income) before “249(5),” there shall be inserted “246D(3),”.

Purchase and sale of securities

17 (1) Section 731 of the Taxes Act 1988 (application and interpretation of provisions relating to purchase and sale of securities) shall be amended as follows.

(2) In subsection (9), in the definition of “interest” the words from “and in applying” to the end of paragraph (b) shall be omitted.

(3) The following subsections shall be inserted after subsection (9)—

“(9A) In applying references in the relevant provisions to interest in relation to a qualifying distribution other than a foreign income dividend—

(a) “gross interest” means the qualifying distribution together with the tax credit to which the recipient of the distribution is entitled in respect of it, and

(b) “net interest” means the qualifying distribution exclusive of any such tax credit.

(9B) In applying references in the relevant provisions to interest in relation to a foreign income dividend paid in circumstances where section 246D(1), (3) or (4) applies—

(a) “gross interest” means the amount of the income arrived at under section 246D(1) by reference to the dividend, and

(b) “net interest” means the dividend.

(9C) Where a foreign income dividend is paid in circumstances other than those where section 246D(1), (3) or (4) applies—

(a) in applying section 735(2) in relation to the dividend the words “the gross amount corresponding with” shall be disregarded, and

(b) in applying references in the relevant provisions (including section 735(2)) to interest in relation to the dividend “net interest” means the dividend.

(9D) In this section “foreign income dividend” shall be construed in accordance with Chapter VA of Part VI.”

Manufactured dividends

18 (1) Section 737 of the Taxes Act 1988 (manufactured dividends: treatment of tax deducted) shall be amended as follows.

(2) In subsection (3) (cases where section 737(1) does not apply) at the end of paragraph (b) there shall be inserted “or”, and after that paragraph there shall be inserted the following paragraph—

“(c) the manufactured dividend is representative of a foreign income dividend.”

(3) In subsection (6) after the definition of “dividend manufacturing regulations” there shall be inserted the following definition—

““foreign income dividend” shall be construed in accordance with Chapter VA of Part VI;”.

19 In Schedule 23A to the Taxes Act 1988, in paragraph 2 (manufactured dividends on United Kingdom equities) the following sub-paragraphs shall be inserted after sub-paragraph (5)—

“(6) In a case where—

(a) the dividend of which the manufactured dividend is representative is a foreign income dividend, and

(b) the dividend manufacturer is a company resident in the United Kingdom,

the manufactured dividend shall, in addition to being treated as mentioned in sub-paragraph (2) above, be treated for all purposes of the Tax Acts as if it were a foreign income dividend; but in such a case the dividend manufacturer shall not by virtue of sub-paragraph (2) above be liable to pay advance corporation tax in respect of the manufactured dividend.

(7) In a case where—

(a) the dividend of which the manufactured dividend is representative is a foreign income dividend, and

(b) the dividend manufacturer is not a company resident in the United Kingdom (so that, were the dividend of which the manufactured dividend is representative not a foreign income dividend, section 737 would apply in relation to the dividend manufacturer),

in relation to the recipient and all persons claiming title through or under him the manufactured dividend shall, in addition to being treated as mentioned in sub-paragraph (3)(a) above, be treated as if it were a foreign income dividend.

(8) In this paragraph “foreign income dividend” shall be construed in accordance with Chapter VA of Part VI.”

Interest on tax overpaid

20 (1) Section 826 of the Taxes Act 1988 shall be amended as follows.

(2) In subsection (1) the following paragraph shall be inserted after paragraph (a)—

“(aa) a repayment falls to be made under sections 246N and 246Q of advance corporation tax paid by a company in respect of distributions made by it in such an accounting period; or”.

(3) The following subsection shall be inserted after subsection (2)—

“(2A) In relation to advance corporation tax paid by a company in respect of distributions made by it in an accounting period, the material date for the purposes of this section is the date on which corporation tax for that accounting period became (or, as the case may be, would have become) due and payable in accordance with section 10.”