Paragraph 10: section 20 of ICTA
3356.Section 20 of ICTA, Schedule F, is rewritten in Chapter 3 of Part 4 of this Act (dividends etc. from UK resident companies etc.). It is repealed for all tax purposes.
Section 20(1) paragraph 1 of ICTA – the Schedule F charging provision
3357.Section 20(1) paragraph 1 of ICTA is an income tax only provision. It therefore applies directly to persons subject to income tax (unless they are dealers or certain individual members of Lloyd’s in which case they are taxed under Schedule D Case I or II).
3358.As an income tax only provision, section 20(1) paragraph 1 of ICTA does not directly apply to persons subject to corporation tax. This is clear from the wording of section 20(1) paragraph 1 of ICTA itself but confirmation of this is also given by section 6 of ICTA.
3359.Therefore, section 20(1) paragraph 1 of ICTA could only apply to corporation tax indirectly, that is, via section 9 of ICTA.
3360.However, section 9 of ICTA is subject to exceptions. On one interpretation of the legislation section 208 of ICTA is one such exception.
3361.Applying this interpretation, where section 208 of ICTA applies section 9 of ICTA does not and so section 20(1) paragraph 1 of ICTA cannot apply.
3362.An alternative interpretation is that section 208 of ICTA is not an exception to section 9 of ICTA but an exemption from corporation tax on dividends and other distributions charged under Schedule F.
3363.Applying this interpretation, section 9 of ICTA applies and so section 20(1) paragraph 1 of ICTA applies, but section 208 of ICTA prevents the dividend or other distribution from being chargeable to corporation tax.
3364.On either interpretation, if section 208 of ICTA applies there is no liability under section 20(1) paragraph 1 of ICTA. Conversely, if section 208 of ICTA does not apply, there is.
3365.There are three exceptions to section 208 of ICTA. These are:
section 95(1A)(c) of ICTA (dealers);
section 219(4A) of FA 1994 (Lloyd’s underwriters); and
section 434(1) of ICTA (franked investment income and life assurance profits).
3366.However, in each case Schedule F does not apply. Instead, dividends and other distributions are taxed under Schedule D Case I or Schedule D Case VI.
3367.There are therefore no instances where a body corporate acting in a beneficial capacity is chargeable to corporation tax under section 20(1) paragraph 1 of ICTA.
Section 20(1) paragraph 2 of ICTA – the income chargeable
3368.Section 20(1) paragraph 2 of ICTA determines the income chargeable and is expressed to apply for “all purposes of the Tax Acts”. It therefore applies directly to a company subject to corporation tax unless there is an express provision to the contrary.
3369.Section 20(1) paragraph 2 of ICTA is expressly disapplied in the case of:
dealers;
Lloyd’s underwriters; and
certain life assurance companies.
3370.Where section 20(1) paragraph 2 of ICTA might otherwise be relevant, that is, in order to establish that income is the aggregate of the dividend etc and the tax credit (for example, under section 13 of ICTA (small companies’ relief), in connection with the surplus ACT rules etc), the relevant legislation uses the term “franked investment income”. Franked investment income is defined in almost identical terms as section 20(1) paragraph 2 of ICTA.
3371.Section 20(1) paragraph 2 of ICTA therefore serves no practical purpose in a corporation tax context.
Section 20(2) of ICTA –priority provision
3372.Section 20(2) of ICTA applies to a distribution “which is chargeable under Schedule F”. It does not therefore apply in a corporation tax context because section 20(1) paragraph 1 of ICTA does not apply.
Section 20(3) of ICTA - signpost
3373.In a corporation tax context, section 20(3) of ICTA introduces Part 6 of ICTA but this introduction is no longer required.
Replacement expressions for special tax rates
3374.The following replacement terms are used:
Schedule F ordinary rate becomes “dividend ordinary rate”;
Schedule F upper rate becomes “dividend upper rate”; and
Schedule F trust rate becomes “dividend trust rate”.
