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HMRC internal manual

Company Taxation Manual

Shadow ACT: utilisation of: overview

Shadow ACT is set against a company’s capacity but not so as to reduce the amount ofits liability. It acts to limit the ability to obtain set-off of unrelieved surplus ACT and ensures that the surplus is accessed to broadly the same extent as it would have been under the previous rules.

The amount of shadow ACT that can be set against a company’s liability for an accounting period cannot exceed the amount of shadow ACT treated as paid in respect of a relevant distribution made at the end of that period of an amount which, together with the shadow ACT treated as paid in respect of it, is equal to the company’s profits charged to CT for that period. That is calculated ignoring any set off of franked investment income or surplus franked investment income. The approach mirrors that in ICTA88/S239 (2).