CTM18550 | Shadow ACT: computation of: introduction

SI1999/358 reg 3 (1), reg 7, reg 8, reg 9, reg 10, reg 11 (1) and (2)

Shadow ACT arises when the franked distributions made by the company in the accounting period (AP) exceed the aggregate of:

• nine-eighths of its franked investment income, and

• the amount of any surplus franked investment income brought forward from the previous AP.

The rate is 25 per cent on an amount which, when the shadow ACT is added to it, is equal to the excess.

'Franked distributions are the amount or value of a relevant distribution and such proportion of that amount or value as corresponds to the rate of shadow ACT.

'Relevant distributions' means any, not just a qualifying, distribution made on or after 6 April 1999 excluding

• manufactured dividends,

• intra group distributions other than those that the company has elected should not be excluded.

'Franked investment income' means a distribution in respect of which the company is entitled to a tax credit and is the aggregate of the amount or value of the distribution and the credit except that it does not include

• income which was interest or which replaces interest as a result of action, the main purpose of which was to reduce the amount of shadow ACT,

• income which accrued as a consequence of arrangements to pass on the value of franked investment income,

• a distribution or payment which is to be taken into account in computing the profits of a dealer chargeable under trading income,

• intra group distributions except those to which an election under reg11 (3) applies,

• distributions received from a company that is not a member of the same group at that time but arrangements in place at the time are such as to give a reasonable expectation that the company will join or rejoin the group, or

• distributions received from a company that is no longer a member of the group where the distributions are made by reference to the shareholdings at a time when the two companies were members of the same group.