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What the Shadow ACT Repeal Means for Businesses Holding Surplus Advance Corporation Tax
With the removal of shadow ACT rules from 1 April 2026, businesses can use surplus ACT balances more flexibly—so understanding eligibility and timing is crucial.
By NomadicTax Research Team • 5-8 min read • April 4, 2026
## Background: What Is Advance Corporation Tax (ACT)?
Though ACT was abolished in 1999, businesses have maintained **surplus ACT balances** under “shadow ACT” rules, allowing limited use of past ACT credits when offsetting current Corporation Tax liabilities. ([gov.uk](https://www.gov.uk/government/calls-for-evidence/advance-corporation-tax-reform-call-for-evidence/advance-corporation-tax-reform-call-for-evidence?utm_source=openai))
## The Upcoming Change (Effective 1 April 2026)
- Shadow ACT rules are set to be **removed**. The government announced this in **Budget 2025**. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html?utm_source=openai))
- A **call for evidence**, published two weeks ago, seeks views on how best to implement the removal, and on the future direction of any remaining ACT regime. ([gov.uk](https://www.gov.uk/government/calls-for-evidence/advance-corporation-tax-reform-call-for-evidence/advance-corporation-tax-reform-call-for-evidence?utm_source=openai))
- Once removed, companies will be able to utilise existing surplus ACT **more quickly**. Delays caused by shadow rules will cease. The removal also simplifies what has become an increasingly complex transitional system. ([gov.uk](https://www.gov.uk/government/calls-for-evidence/advance-corporation-tax-reform-call-for-evidence/advance-corporation-tax-reform-call-for-evidence?utm_source=openai))
## Which Entities Are Affected Most?
- Companies with **historic ACT balances** that have been waiting under old rules.
- Those that had surplus ACT but were constrained in using it due to shadow rules.
- Taxpayers who planned for slow draw-downs; now must adjust forecasts and cashflows to take advantage.
## Practical Steps for Affected Businesses
1. **Audit your ACT balances**: Confirm amounts available and potential utilisation once shadow rules end.
2. **Plan dividend payments carefully**: If you issue dividends, names and timing may affect how effectively you can use surplus ACT.
3. **Review forecasts and tax planning models**: With usage being unlocked, you may shift tax provisions or reserves.
4. **Engage with the call for evidence**: Businesses may influence outcomes (e.g., timing, administration) by responding. Deadline and details in the consultation document on gov.uk. ([gov.uk](https://www.gov.uk/government/calls-for-evidence/advance-corporation-tax-reform-call-for-evidence/advance-corporation-tax-reform-call-for-evidence?utm_source=openai))
## Example Scenario
A mid-sized UK company has **£500,000 surplus ACT** carried forward. Under old shadow rules, they were allowed to utilise only limited portions each year. From **1 April 2026**, they may be able to immediately apply more of this surplus to reduce current and future corporation tax liabilities — freeing up cash for investment or operational needs.
## Implications and Key Considerations
- **Cashflow benefits**: Faster relief allows reinvestment or allocation of funds to more strategic uses.
- **Accounting adjustments**: May require adjusting deferred tax accounting, reserves and financial reports.
- **Compliance risk**: Ensure precise records of ACT balance history and eligibility to avoid HMRC challenge.
- **Tax advice**: Seek professional counsel—this change may interact with other reforms (e.g., tax rate shifts, transfer pricing, etc.)
By preparing early, businesses with surplus ACT can take full advantage of the impending repeal while managing risk and maximizing benefits.