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As a lawyer I am frequently being asked about the treatment of dividends with the abolition of ACT.
In particular, what is the position if pre-abolition the dividend is stated in the articles of association as being, for example, 7%. Can you let me know if there is any difference if the articles refer to 7% inclusive of any imputed tax credit, or if they are silent on the point. Also in drafting dividend rights now, should there be any reference to imputed tax credit?
Many thanks for your help.


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By Anonymous
15th Jan 2001 15:21

A Fixed Rate Dividend Rate Is Fixed
The tax credit is not part of a dividend.
The rate of a tax credit is fixed by the government. A company has no influence over the rate of the tax credit.

Therefore if a fixed rate dividend was 7% when the ACT and tax credit rate was 20/80ths of the dividend, it remains 7% even if ACT is abolished and the tax credit rate is reduced to 10/90ths.

Your query implies that a dividend has been stated in the Articles Of Association as being at a fixed rate, based on the dividend and the tax credit. This would be most unusual and I have never seen such a situation, except in Articles of Association that predate the introduction of the tax credit or imputation system of corporation tax.

Prior to the introduction of the tax credit or imputation system of corporation tax, Articles of Association usually stated a fixed rate dividend at a gross rate before the deduction of income tax. Para 18 Scedule 23 TA 1972 provided that a fixed rate gross dividend established pre 6 April 1973 was to be reduced for ever by 30%. The reduced fixed rate dividend would then carry a tax credit. In future the tax credit would vary with changes in the rate of ACT but the dividend rate would was fixed and would never change.

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