Advance corporation tax (ACT) is a feature of the imputation system of taxation that has applied in Britain since 1972. When dividends (or other distributions) are made by UK companies to their shareholders, the companies must account to the Inland Revenue for advance corporation tax at a rate that would equal the basic rate of income tax on a figure consisting of the distribution plus the ACT. Thus, if the basic rate of income tax is 30%, the rate of ACT would be 3/7, so that a dividend of œ700 with its ACT of 3/7 x œ 700 = œ300 would total œ1000, on which the tax at 30% would be œ300 (the amount of the ACT). The ACT thus paid serves two purposes: (1) it is a payment on account of the individual shareholder's personal income tax on the dividend, and (2) for the paying company it constitutes a payment on account of that company' s corporation tax for the period in which the dividend is paid. There are limits to the amount of ACT that may be set against corporation tax liabilities for any given period. Unrelieved ACT may
also be carried backwards or forwards or surrendered to other companies. Research Advance Corporation Tax
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Abbreviations
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Research Advance Corporation Tax
