HC Deb 09 June 1992 vol 209 cc80-1W
Mr. Barry Field

To ask the Chancellor of the Exchequer if he will issue a statement on the recoverability of advance corporation tax; how many companies have sought clearance before the payment of a group dividend with advance corporation tax attaching; how many are awaiting clearance; and what is the average waiting time for clearance.

Mr. Dorrell

Advance corporation tax—ACT—paid by a company in respect of a dividend or other qualifying distribution made in an accounting period may, up to a limit, be set against the company's liability to corporation tax for the accounting period. Where a company has paid more ACT than it can set off in an accounting period, it may carry back the surplus to set against its liability to corporation tax in the previous six years, which may give rise to a repayment of corporation tax for those years. Surplus ACT may also be carried forward indefinitely against future liability to corporation tax.

Special rules exist to counteract artificial tax advantages, including payment of a tax credit, or non-paymnent of ACT attaching to a dividend, when certain transactions in securities are involved. Companies can seek a clearance from the Inland Revenue that these rules do not apply. In the year to 31 March 1992, the Inland Revenue received about 3,500 such applications, of which less than 10 per cent. involved dividends paid within a group of companies. The average number of all cases awaiting clearance at any time in the six months to 31 March 1992 was 157, most of which did not involve dividends. All cases are processed within 30 days.

Mr. Barry Field

To ask the Chancellor of the Exchequer if he will set out the reasons for treating the recovery of advance corporation tax by subsidiaries of group companies differently from the treatment of group companies as one taxpayer.

Mr. Dorrell

Companies paying dividends within a group may elect not to pay advance corporation tax on them. Where, however, a parent company pays a dividend, it must account for ACT. The parent may either set that ACT against its own liability to corporation tax, or may surrender it to a subsidiary, to be set off against the subsidiary's liability. This may lead to a repayment of corporation tax. Companies within groups may also be entitled to a credit for ACT suffered on the dividend income they receive.

Within a group, these provisions enable ACT to be paid only by the parent company and for that ACT to be set off against corporation tax within the group.

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