The system adopted to determine the extent to which surplus ACT carried forward (post 5 April 1999) can be set off against corporation tax arising on or after 6 April 1999. Although no actual advance corporation tax (ACT) arises on distributions made after 5 April 1999, a qualifying distribution triggers “notional ACT”. In determining a company’s capacity to set off surplus ACT carried forward, “notional ACT” must be taken into account. This restricts the extent to which a company can set off surplus ACT against corporation tax.

For more detail, see Practice note, Shadow ACT.