Before 6 April 1999, if two UK resident companies were not part of the same group and one made a distribution to the other, the payer would usually have to account to HMRC for advance corporation tax (ACT). However, the recipient company did not have to pay corporation tax on the distribution, which, in its hands, was called franked investment income (FII). A company in receipt of FII could use that to frank the ACT liability that would otherwise arise on distributions made to its own shareholders (within certain limits).

Special rules applied to foreign income dividends and international headquarters companies.

From 6 April 1999, ACT ceased to be payable in respect of qualifying dividends. Even so, the concept of FII continued and a shadow ACT regime was introduced to provide companies with unrelieved surplus ACT with a means of setting off the surplus ACT against corporation tax. In determining the amount of surplus ACT that a company could set off, shadow ACT (that is, notional ACT) was first required to be notionally set against corporation tax before any surplus ACT could be used. For more detail on shadow ACT, see Practice note, Shadow ACT.

At the same time as the Finance Act 2016 changed the taxation of dividend income for individual recipients with the withdrawal of the tax credit attaching to dividends, the concept of FII was removed from the Corporation Tax Acts. As FII is an essential element in computing the amount of unrelieved surplus ACT a company may use under the shadow ACT regime, the shadow ACT regime created the concept of "qualifying investment income", which performs the same role within the shadow ACT regime as that previously performed by FII.