What's ACT? Advanced corportation tax used for?
Discussion
Up until April 1998, when a company paid a dividend to its shareholders, tax at 20% was deducted at source from the dividend e.g. if the shareholders were to receive a dividend of £10,000 each, they would receive £8,000 into their hand and £2,000 was paid directly to the Inland Revenue by the company.
The tax deducted on the dividend had a double credit aspect to its treatment.
In the hands of the individual shareholder, the £2,000 was taken as being the indiviuals income tax liability on the dividend and they did not have to pay any further amounts of tax on the dividend, unless their income for the tax year took them into the higher rate tax bands.
The company was allowed treat the tax deducted on the dividend as an advance payment of the company's eventual Corporation Tax bill for the year. e.g. - if the company had a CT liability on its profits of (say) £12.000, it could deduct the Adnace Corporation tax on the dividend of £2,000 (as per the above example) and pay over the reduced amount of £10,000.
Gordon Brown replaced this rather cumbersome system with a different treatment. Companies no longer deduct tax at source on dividends. As the companies no longer pay over any tax on the dividend, they have not made any "advance" payments of their Corporation Tax bills.
The tax deducted on the dividend had a double credit aspect to its treatment.
In the hands of the individual shareholder, the £2,000 was taken as being the indiviuals income tax liability on the dividend and they did not have to pay any further amounts of tax on the dividend, unless their income for the tax year took them into the higher rate tax bands.
The company was allowed treat the tax deducted on the dividend as an advance payment of the company's eventual Corporation Tax bill for the year. e.g. - if the company had a CT liability on its profits of (say) £12.000, it could deduct the Adnace Corporation tax on the dividend of £2,000 (as per the above example) and pay over the reduced amount of £10,000.
Gordon Brown replaced this rather cumbersome system with a different treatment. Companies no longer deduct tax at source on dividends. As the companies no longer pay over any tax on the dividend, they have not made any "advance" payments of their Corporation Tax bills.
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