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Analysis of distributable profits |
See Also
Foreign dividends | Relevant profits
Select from the following headings:
Background | Developing the schedule | Completing the Schedule | Standard Sub-Schedules | Carry Forward | Related Errors
This schedule provides data entry cells for details of overseas dividends. The information flows up to the Foreign dividends schedule automatically.
Although it is possible to deal with dividends using the Foreign dividends schedule alone, it is often easier to use the Foreign dividends schedule and the Analysis of distributable profits schedules together to provide full details, particularly where the dividend needs to be grossed up for underlying tax and/or there is a chain of dividends.
A separate Analysis of distributable profits schedule should be developed each time the company receives an overseas dividend, from a company that itself has received an overseas dividend, although what you see on the schedule will be slightly different depending on whether it was developed form the Foreign dividends schedule or from another Analysis of distributable profits. This schedule will then support and populate the calculation of the underlying tax and EUFT on the Foreign dividends schedule. (See the example given on the Foreign dividends page.)
By completing the various data entry cells, the software will then 'mix' together the tax credits on the dividends received by the company and the profits of the company itself to calculate the company's distributable profits and tax payable. Hence the underlying tax (ULT) rate on any dividend paid by the company in this period is derived by the system.
This schedule can be developed from the Foreign dividends schedule and provides a basis for calculating the Distributable profits and Tax payable figures on the parent schedule. A further copy can be developed from any Analysis of distributable profits schedule.
The look of the schedule has changed with the 2004 release. The area dealing with dividends received has been hidden and will only display if a selector at the foot of the schedule is set to display the area (as the company has received dividends). This should simplify the schedule that needs to be completed if the foreign company itself receives no dividends.
Once this schedule has been developed, you should complete the Retained earnings section of the Analysis of distributable profits schedule with details of the surrendering company.
The top part of this Analysis of distributable profits schedule (Details of dividends received) needs only to be completed if the surrendering company itself has received a dividend from a third company.
The sections of the screen are described in more detail below:
Relevant profits
In this section, you should enter details of the surrendering company's own profits or other income or expenses where required. You should distinguish between the tax per the company's set of accounts, and the tax paid by the company using the P/L and Tax columns within this section. You should also enter date that the company paid the dividend, the amount of dividend it paid and the exchange rate. If the exchange rate is not applicable, you should enter 1 into the Exchange rate cell. N.B. The exchange rate cell has been removed for FY2008 onwards and no longer needs to be populated. If the dividend is being paid out of more that one period then the numbers should either be aggregated here and the aggregate entered as the profit and tax figures or the Relevant profits schedule should be used. Where the Relevant profits schedule is developed it will automatically overwrite any numbers entered in the Own profits or Tax Paid cells.
From 2004 the software deals with spared tax but only in a company paying a dividend directly back to the UK. This cell will not appear where the analysis schedule is itself developed from an Analysis of distributable profits schedule. Users can manually enter any spared tax and the software will then include this for credit purposes throughout its calculation as though the tax were paid. The spare tax will then be excluded from the calculation of the foreign income on the Foreign dividends schedule.
You should enter the full amount of the tax spared as the software will calculate the part that relates to the actual dividend paid.
From FY 2005 onwards there is a new data entry cell for Tax Rate Override which will allow the user to override the tax rate for the purposes of calculating the DV income and DTR. However, if using supporting schedules to calculate Case B EUFT this will not be affected by the override in so far as it arose at lower levels.
The Distributable profits and Tax payable cells in the Foreign dividends schedule are completed automatically from the data entered in this section.
Dividends Received
This section deals with dividends received by the company that is paying the dividend back to the UK (and successively down the chain). From 2004 onwards you need to go to the selector at the foot of the schedule that asks if you want to display details of dividends received and set this to Yes. You can then develop further Analysis of distributable profits schedules to support each dividend being paid back to the company which itself is paying the dividend back to the UK.
Dividend paid
This section has been extended to reflect the Finance Act 2000 changes in respect of onshore pooling, and the user should format the cells to deal with dividends in a foreign currency as appropriate, completing the Exchange rate cell so that the software can translate the amounts into sterling. (See below for more information on using foreign currencies.) Where the Relevant profits schedule is developed it will automatically fill in the date and amount of the dividend, but not the exchange rate.
Where dividend tax is paid (i.e. any tax that is borne by the company paying the dividend and relating to the dividend) this may be entered from 2004 under the Dividend paid. The software will then gross this dividend tax up to the additional amount of tax that the company would have needed to have paid on all its profits to get the correct effective tax rate on the dividend and entered in the Retained earnings section above.
Cap on underlying tax
As part of the change in the DTR regulations, the user is required to specify whether dividend capping applies - this is achieved by setting the Cap onunderlying tax selector flag. These selectors relate to the dividend being paid by the company for whom the Analysis of distributable profits schedule relates, i.e. the company paying the dividend, not to the company receiving the dividend.
This selector will only display for in the 2004 release onwards where the Analysis of distributable profits schedule is developed from another Analysis of distributable profits schedule. Where the schedule is developed from the Foreign dividends schedule (i.e. the dividend is coming directly back to the UK) the selectors do not display and the software applies the cap.
The cap is set to apply by default, but this may be changed accordingly in
the case of:
The option of dividends received by the ultimate UK recipient company before 31 March 2001 is available for previous periods, but is not available in 2004.
Extra selector conditions, cap applies - dividend paid by overseas company and cap applies - dividend paid by UK company, have been introduced to deal with the situation where a UK company is in a chain of foreign companies. If tax in excess of the mixer cap arises below the lower UK company, then this could potentially be relieved in both the lower and top UK companies, although ICTA 1988 s 806A(5) does go some way to prevent this.
If cap applies - dividend paid by UK company is selected, the software produces a further selector, UK company in chain - set cumulative EUFT at this level to NIL. This additional selector flag allows the user to specify whether the EUFT be relieved solely in the lower UK company (the default setting) or relieved in both UK companies in the chain depending upon the user's interpretation of the legislation.
Computation of underlying tax (TIOPB 2010 s57 )
Where the cap applies, this will trigger the mechanics of the EUFT calculation, the cap on underlying tax being calculated by the software with reference to:
Disclaimer of foreign tax
To avoid overseas dividends higher up the chain becoming non-qualifying or 'tainted' because of the mixer cap restriction, the user can also elect to disclaim any EUFT arising by means of a separate data entry cell. This may be done with reference to the memorandum amount computed by the software at the foot of this screen section.
Using foreign currencies
In the top part of the schedule (the Details of dividends received section), it is important to appreciate that values in the Distributable profits and Tax payable columns should be entered in the currency in which they were paid and values in the columns to the right of the Tax rate column should be entered in the recipient's currency.
If a further Analysis of distributable profits schedule has been developed, the appropriate values will be imported automatically, with the exception of withholding tax which must be entered manually.
The cells in the relevant columns can be formatted in the respective currency in the manner described in the Setting the currency for a range section of Working with Foreign Currencies. A summary of this is as follows:
1. Highlight the relevant cells in the Details of dividends received section that are to be formatted with the selected currency.
2. Using the currencies bar, select Cells and then the respective currency from the list of currencies. Values in those cells will now appear in that currency and be treated as such.
It is therefore possible to format rows in the Distributable profits and Tax payable columns in different currencies, but the recipient's currency must be applied to all rows in the columns to the right of the Tax rate column.
All cells in the P/L and Tax columns must be formatted in the local currency of the company that is paying the dividend from this level, as described above.
Note: formatting these cells in a foreign currency will generate error messages in the Eligible underlying foreign tax section. These error messages will be cleared when other cells are subsequently formatted. The additional formatting is described in the following sections.
Important note: If the currency of the cells in the Local currency column is not sterling and is different from the currency of the recipient receiving a dividend from this level, the user should not enter a value in the Exchange rate manually e.g. "1.6". Apply the procedure described in the Setting the exchange rate for a cell or range of Working with Foreign Currencies to enter the exchange rate in a cell of the user's choice. The cell that contains the exchange rate, for example in the format @US$1.5, can be the Exchange rate cell or another cell (on this or another schedule). If another cell is used the Exchange rate cell should include a reference to that cell, otherwise error messages will appear in the Recipient's currency column. For FY2008 onwards, the exchange rate box has been removed.
The cells in the Local currency column should be formatted in the local currency of the company that is paying a dividend from this level in the manner described per the Working with Foreign Currencies schedule. The cells in the Recipient's currency column should be formatted in the currency of the company receiving the dividend.
Details of dividends received
The user should enter details of any dividends received by a third or subsequent company in question in the top section of the schedule. Further Analysis of distributable profits schedules can be created from the current schedule to support foreign dividends received by the company. In this way the software can be made to build up the ULT on dividends paid through a succession of group companies.
There are no additional standard sub-schedules. However, a separate Analysis of distributable profits schedule may be developed from the current Analysis of distributable profits schedule each time the company receives an overseas dividend from a company that itself has received an overseas dividend.
A Relevant profits schedule may be developed if a calculation of relevant profits under TIOPB s59 and s62 is required.
On carry forward, this schedule is automatically developed in the subsequent computation if it is present in the prior year computation.
© 2009 Thomson Reuters.