Advance Corporation Tax - ACT

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DEFINITION of 'Advance Corporation Tax - ACT'

The prepayment of corporate taxes by companies in the United Kingdom that distributed dividend payments to shareholders. The tax, which was introduced in 1973, was abolished in 1999 by then Prime Minister Gordon Brown; however, a 10% tax relief on didvidend income remained.

INVESTOPEDIA EXPLAINS 'Advance Corporation Tax - ACT'

The advance corporation tax was paid before a company's main corporation taxes, when dividend payments were made to shareholders. The amount paid in ACT was deducted from the main corporation taxes. A company's ACT payments meant that those receiving dividends had already paid a basic rate tax on any dividend income. For the company, the amount paid in ACT could be factored in its profit and loss statements, thereby potentially reducing its corporate tax burden.

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