Prior to 6 April 1999 where the amount of ACT (advance corporation tax) that a company paid on dividends exceeded its capacity to offset the ACT against mainstream corporation tax it had surplus ACT. Where a company had surplus ACT, it could be rolled forward indefinitely and set off against corporation tax in later accounting periods, carried back for up to six years and, in certain circumstances, surrendered to 51% subsidiaries. The shadow ACT rules were introduced to deal with surplus ACT built up by a company prior to 6 April 1999.

For more detail, see Practice note, Shadow ACT.