Income Tax (Trading and Other Income) Act 2005 section 393

Later charge where cash dividends retained in SIPs are paid over

Section 393 deals with the income tax treatment of cash dividends that have been held by Share Incentive Plan (SIP) trustees and are subsequently paid over to a participant rather than being reinvested in dividend shares.

• When SIP trustees pay a retained cash dividend to a participant (because it was not reinvested, the three-year holding limit was reached, the participant left relevant employment, or the plan was terminated), income tax is charged in the tax year the dividend is paid over to the participant, not the year the company originally paid it.
• The tax charge is based on the actual amount of the cash dividend paid over to the participant, which may differ from the amount originally paid by the company.
• The participant who receives the cash dividend is personally liable for any income tax arising on that payment.
• Whether the dividend is treated as having been paid by a UK-resident company (and therefore taxed under the dividends chapter) or by a non-UK-resident company (taxed under different rules) is determined by looking at the tax year in which the company originally paid the dividend, not the year it was paid over to the participant.