Advance corporation tax may have been abolished, but it is still an issue for companies with unrelieved surplus ACT as at 6 April 1999, who will generally find it difficult to realise the value of that surplus under the shadow ACT régime.
A fundamental problem is how to satisfy shareholders’ expectations of regular returns of profit, while avoiding distributions which will generate shadow ACT and thus inhibit the use of surplus ‘real’ ACT brought forward into the new régime.
One planning technique which may reconcile these conflicting pressures is to replace dividends with a programme of rolling share issues and redemptions. This idea is a variation on the special share schemes which have been used in the past to make one-off returns of cash to shareholders without giving rise to ACT. It involves periodic bonus issues by the company of a special class of redeemable preference shares, typically out of share premium. The shares may then be redeemed by the company on a regular basis
