Advance corporation tax

A taxation system used by the UK government to take a slice of income from the dividends that companies paid to their shareholders. However, advance corporation tax (ACT) had a penal effect on UK-based companies that made most of their profits overseas and was abolished in April 1999. Thus companies no longer have to pay the government 25% of the amount of the dividend that they paid to their shareholders. Correspondingly, shareholders no longer receive a tax credit equal to the value of the ACT paid. The exception to this rule, however, is that private investors still get a small tax credit, equal to 11% of the dividend that they receive, which they can offset against their tax liability.