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Rules for giving double taxation relief on foreign income have not been altered in the Finance Bill to reflect the reduction in the corporation tax rate.
In her speech announcing the third reading of the bill, financial secretary Jane Kennedy said as a result of this unintentional omission, some companies could face double taxation on a small part of a number of dividends received during this financial year.
She said that the matter will be rectified, and then addressed in next year's Finance Bill, with provisions backdated to 1 April 2008 to ensure that no income faces double taxation.
In the meantime, Ms Kennedy said 'HMRC will use its statutory discretion to give the necessary double taxation relief'.
HMRC are to work with the Confederation of British Industry and others to identify the most appropriate solution, consistent with the elimination of double taxation of dividend income and will publish draft clauses for comment.
In the coming year, HMRC say that very little corporation tax liability will actually arise from dividends paid in the year, but companies will need to make quarterly instalment payments and possibly final corporation tax payments before any change to the law can take effect in next year's Finance Act.
For this period HMRC will not deny foreign tax credit because of this mismatch.
Further details are given in question and answer on HMRC's website.
