HC Deb 02 March 1954 vol 524 c77W
Mr. McKay

asked the Chancellor of the Exchequer if, when dividends are distributed free of tax by companies, the money set aside to pay the tax is treated as a cost of production, or is taken as part of the distributed profits and taxed accordingly, or accepted as undistributed profit and receives the lower rate of tax.

Mr. R. A. Butler

A dividend paid by a company out of profits that have borne Income Tax which is expressed to be "free of tax" represents, for tax purposes, a distribution equal to the net dividend plus the Income Tax appropriate to it, and the gross amount is chargeable to Profits Tax at the higher (distributed) rate.