Advance corporation tax meaning

Advance corporation tax definitions

Advance Corporation Tax (ACT) was a tax system in the United Kingdom that required companies to pay their corporate taxes in advance of the financial year-end. The purpose of ACT was to prevent companies from avoiding taxes by distributing profits as dividends.

History of Advance Corporation Tax

ACT was introduced in 1973 as a way to prevent tax avoidance by companies. It required companies to pay a percentage of their expected profits as advance tax payments to the government. The system was designed to provide a steady flow of revenue to the government throughout the year, rather than waiting until the end of the financial year to collect taxes.

Changes and Repeal

Over time, there were changes made to the ACT system, including reductions in the rates and eventual repeal of the tax in 1999. The repeal of ACT was part of a broader reform of the corporate tax system in the UK, which aimed to simplify the tax code and make it more competitive for businesses.

Impact on Companies

For companies, the repeal of ACT meant that they no longer had to make advance tax payments on their profits. This change provided companies with more flexibility in managing their cash flow and finances. However, the removal of ACT also meant that companies had to adjust their tax planning strategies to account for the absence of this tax.

Dividends became a more straightforward way for companies to distribute profits to shareholders after the repeal of ACT. Without the requirement to pay advance tax on dividends, companies could distribute profits more freely without incurring additional tax liabilities.

Overall, the repeal of Advance Corporation Tax was a significant change in the UK's corporate tax system that had implications for both businesses and the government. By eliminating the requirement for companies to pay taxes in advance, the UK aimed to create a more competitive and business-friendly tax environment.

Advance corporation tax Examples

1. The company had to pay advance corporation tax on their profits.
2. Investors can offset advance corporation tax against their final tax liabilities.
3. The government is considering changes to the advance corporation tax rules.
4. Businesses often seek advice on how to minimize advance corporation tax payments.
5. The finance department is responsible for calculating advance corporation tax due.
6. Some companies engage in tax planning to reduce their advance corporation tax burden.
7. Shareholders are concerned about the impact of advance corporation tax on dividends.
8. The company's financial statements include a provision for advance corporation tax.
9. Changes in legislation have led to uncertainty around advance corporation tax rates.
10. The tax authorities have issued guidance on how to pay advance corporation tax.

Most accessed