The Finance Act 2008 received Royal Assent on 21 July 2008. The Act brings into force many of the measures announced in the Budget of 12 March 2008.

Double taxation relief following change in corporate tax rate

On 3 July 2008, the Financial Secretary to the Treasury announced that, due to an oversight, the 2008 Finance Bill did not take into account the effect of the reduction in the corporate tax rate on the rules granting double taxation relief for foreign dividends.

The issue is significant for companies with accounting periods straddling the beginning of the 2008 financial year (i.e. 1 April 2008). Before that date, the corporation tax rate was 30%, falling to 28% on and after that date. The Income and Corporation Taxes Act 1988 contains a formula ("the mixer cap") for limiting the amount of tax to be taken into account as underlying tax. The Finance Bill should have made provisions to address the mismatch in rates. In the absence of such provision, the operation of the mixer cap will, in some cases, restrict the foreign tax credit to an amount lower than the corporation tax arising on the dividend.

The Financial Secretary stated that the 2009 Finance Bill will include provisions to rectify the situation. These will have retrospective effect from 1 April 2008. In the meantime, HMRC will use its statutory discretion to grant double taxation relief.

The 2008 Finance Bill was brought from the Commons on 3 July 2008. The Bill is scheduled to complete its stages in the House of Lords by 18 July 2008.