Everything you need to know about STC credits
10 November 2014
Posted by: Author: Mike Dingley
Author: Mike Dingley (Mazars)
Dividends Tax has been payable since 1
April 2012. Prior to this, resident companies that declared dividends were
subject to Secondary Tax on Companies (‘STC’). Under the Dividends Tax regime
when a company pays a dividend, it is, subject to certain requirements, allowed
to deduct unused STC credits from the dividend amount in calculating the amount
subject to Dividends Tax. Some changes are in the pipeline though, but for
those who need a better understanding, here are some points to note.
is an STC credit?
If a company had an open ‘dividend cycle’
at the inception of Dividends Tax the cycle was deemed to have ended on the day
before such inception and that cycle is known as the ‘final dividend cycle’.
This meant that at the end of the ‘final dividend cycle’ a company could have
had a deemed dividend accruing from the penultimate ‘dividend cycle’ together
with other dividends which accrued to it in the ‘final dividend cycle’ which
had not been set off against dividends declared. This un-utilised balance is
referred to as an ‘STC credit’.
is STC calculated?
The period between two successive dividends
declared by a company is referred to as a ‘dividend cycle’. STC is paid on the
company’s ‘net amount’ of dividends in a ‘dividend cycle’ where the ‘net
amount’ was the amount of the dividend declared by the company, less the amount
of dividends that accrued to the company in that ‘dividend cycle’.
Group company dividends on which no STC was
paid could not be deducted in establishing a ‘net amount’. Where the amount of
dividends accrued exceeded the dividend declared in a ‘dividend cycle’ the
excess could be carried forward to the company’s next ‘dividend cycle’ and was
deemed to be a dividend that accrued to the company in that next cycle.
about Dividends Tax exemptions?
Where a company’s shareholder is an
individual this is fair and equitable but where the shareholder is a resident
company it is exempt from Dividends Tax in any event. This means that where a
dividend paying company utilises an STC credit and the dividend is paid wholly
or partly to a resident company, the STC credit, or portion of it, would have
effectively been lost. For this reason the recipient resident company is
allowed, subject to certain conditions, to add the STC credit that was
applicable to its dividend portion to its own STC credit balance.
On 1 April 2015 a company’s STC credit will
be deemed to be nil. Companies are therefore reminded to calculate their STC
credit balance and use it before this date. Companies should also consider
whether companies in which they own shares should pay dividends and pass STC
credits up the line.
This article first appeared on the November/December edition on Tax Talk.