Advance Corporation Tax was a system under which companies paid tax in advance on profits distributed as dividends to shareholders.

Simple Meaning:

It was a tax paid by a company at the time of paying dividends, before the final corporation tax was calculated.

How It Worked:

When a company declared dividends, it paid ACT to the tax authorities.

This amount was later adjusted against the company’s total corporation tax liability.

Purpose:

It ensured that tax was collected in advance when profits were distributed.

In short, Advance Corporation Tax was an advance payment of tax linked to dividend distribution.