ACCA Applied Skills · Taxation (UK)

The comprehensive computation of corporation tax liability: formula sheet

Full chapter guide

Key formulas

Corporation tax computation layout: Trading profit + Property income + Interest (non-trading loan relationships) + Chargeable gains = Total profits before reliefs; less qualifying charitable donations (and loss reliefs) = Taxable total profits (TTP); Use the same order every time. Show a zero or a nil line only if it helps you keep your place.
Adjusted trading profit: Profit per accounts + disallowable expenses − non-taxable income − income taxed elsewhere (e.g. rent, interest, gains) − capital allowances + balancing charges; Capital allowances are deducted after adjusting the profit. Do not use accounts depreciation.
Augmented profits: Augmented profits = TTP + exempt ABGH distributions (dividends from non-group companies); Used only to test the limits and for marginal relief. It is not the base the tax is charged on.
Corporation tax rates (FY2023 to FY2025): Small profits rate 19%; main rate 25%; lower limit £50,000; upper limit £250,000; Limits are for a 12-month period and are reduced for short periods or associated companies.
Marginal relief: (Upper limit − augmented profits) × standard fraction × TTP ÷ augmented profits, with standard fraction 3/200; Applies where augmented profits are between the lower and upper limits. Deduct the relief from tax at the main rate.
Maximum length of a CAP: CAP ≤ 12 months; A period of account over 12 months is split into a 12-month CAP followed by a CAP for the balance.
Time apportionment of trading profit: Profit for CAP = Total adjusted trading profit × (months in CAP ÷ months in period of account); Apportion to the nearest month. Apply this to the adjusted trading profit before capital allowances; then deduct each CAP's own capital allowances.
Capital allowances in a long period: Compute capital allowances separately for each CAP; The annual investment allowance limit and the writing down allowance are for each CAP, and both are time-apportioned for a CAP shorter than 12 months.
Non-trading income and gains: Allocate to the CAP in which they arise; Property income is time-apportioned, like trading profit. Interest (loan relationship) income is allocated on an accruals basis, and chargeable gains fall in the CAP of disposal.
Corporation tax limits for a short CAP: Lower limit £50,000 and upper limit £250,000, each × (months in CAP ÷ 12); Reduce the limits for a short CAP. For example, a 3-month CAP has an upper limit of £250,000 × 3/12 = £62,500. Marginal relief: (Upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits.
Trading loan relationship: Interest paid for trade purposes = deduction in adjusted trading profit; Interest received on trade bank accounts is also treated as trading and taxed within trading profit if it relates to the trade.
Non-trading loan relationship income: Interest receivable (accruals) − interest payable on non-trade loans (accruals) = net non-trading loan relationship income; If the result is positive, it is taxable. Keep it separate from trading profit in the computation.
Add back in adjusted trading profit: Add back non-trade interest paid; deduct non-trade interest received included in accounts profit; Avoids double counting, because non-trading interest is taxed under its own heading.
Total profits: Trading profit + non-trading loan relationship income + property income + chargeable gains (+ other income, excluding dividends from UK companies); Qualifying charitable donations are deducted from this figure.
Taxable total profits: Total profits − qualifying charitable donations paid in the period; Donations are deducted from total profits, not from trading profit. They cannot create a loss, and unrelieved amounts are lost.
Augmented profits: Taxable total profits + exempt dividends from non-group companies; Augmented profits are used for the corporation tax limits. The donation is already deducted in taxable total profits, so it reduces augmented profits too.
Taxable total profits: Trading profits + property income + interest and other income + chargeable gains − qualifying charitable donations; Exempt dividends received are not included.
Augmented profits: Taxable total profits + exempt dividends received from non-group companies; Dividends from 51% group companies are not added.
Rates (financial year 2025): Small profits rate 19% (augmented profits up to £50,000); main rate 25% (augmented profits over £250,000); Between the limits, the main rate applies less marginal relief. Limits are £50,000 and £250,000 for a 12-month period.
Marginal relief: (Upper limit − augmented profits) × 3/200 × taxable total profits ÷ augmented profits; Deduct from tax at the main rate on taxable total profits. Applies when augmented profits are between the limits.
Quarterly instalments threshold: Augmented profits above £1,500,000 (profit threshold); Used to decide whether a company is large for instalment purposes. The limit is also adjusted for associated companies.
Small profits rate: Tax = taxable total profits × 19%; Applies when augmented profits are £50,000 or less (after adjusting the limit for short periods and associated companies).
Main rate: Tax = taxable total profits × 25%; Applies when augmented profits are £250,000 or more (after adjusting the limit).
Marginal relief: MR = (upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits; Deduct from tax at 25%. Applies when augmented profits are between the lower and upper limits.
Augmented profits: Augmented profits = taxable total profits + exempt distributions from non-group companies; Dividends from group companies are excluded. Use augmented profits to test the limits.
Short period adjustment: Adjusted limit = limit × months in period ÷ 12; Applies to both the £50,000 and £250,000 limits.
Associated companies adjustment: Adjusted limit = limit ÷ (number of associated companies + 1); Applies to both limits. The company itself is counted in the divisor.
Corporation tax rates (financial years 2023 to 2025): Small profits rate 19%; main rate 25%; Given in the exam tax tables. The small profits rate applies if augmented profits do not exceed the lower limit.
Normal limits: Lower limit £50,000; upper limit £250,000; These apply to a single company with a 12-month period.
Adjusted limits: Adjusted limit = limit ÷ total number of associated companies (including the company itself) × (months in period ÷ 12); Count the company being tested as one of the companies. Equivalently, divide by (1 + number of other associated companies).
Marginal relief: (Upper limit – augmented profits) × standard fraction × taxable total profits ÷ augmented profits; The standard fraction is 3/200. Use the adjusted upper limit. It is deducted from tax at 25% on taxable total profits.
Quarterly instalments threshold: Profit threshold £1,500,000; The exam tax tables give only the £1,500,000 figure. As a rule of law, the threshold is also divided by the number of associated companies and time-apportioned for a short period. Mention this only if the question asks about instalments.
Large company test: Augmented profits > £1,500,000 ÷ (number of associated companies + 1); Augmented profits = taxable total profits + exempt distributions received (not from 51% subsidiaries). Time-apportion the limit for a short period.
Very large company test: Augmented profits > £20,000,000 ÷ (number of associated companies + 1); This limit is not in the tax tables, so memorise it. It is also time-apportioned for a short period.
Amount of each instalment: Corporation tax liability for the period ÷ 4; Applies to a 12-month period. Do the corporation tax calculation, including any marginal relief, first.
Due dates: large company (12-month period): 14th day of months 7, 10, 13 and 16 after the start of the period; Equivalent to 6 months 13 days, then every 3 months. The last instalment is 3 months 14 days after the period ends.
Due dates: very large company (12-month period): 14th day of months 3, 6, 9 and 12 after the start of the period; Equivalent to 2 months 13 days after the start, then every 3 months.
Exceptions: Liability ≤ £10,000, or not large in the previous period and augmented profits ≤ £10,000,000 (÷ associates + 1); Pay on the normal due date, 9 months and 1 day after the period end. The second exception is for large, not very large, companies.
Normal due date: 9 months and 1 day after the end of the accounting period; Used for companies that are not large, or that meet an exception.
Due date (non-large company): Due date = period end + 9 months + 1 day; Applies to companies not required to pay by quarterly instalments.
Interest on underpaid tax: Interest = unpaid tax × 8.50% × months late ÷ 12; Runs from the due date to the date of payment. Rate is given in the ACCA tax tables.
Interest on overpaid tax: Interest = overpaid tax × 3.50% × months ÷ 12; Runs from the later of the due date and the date the tax was paid, up to the repayment date.
Large company threshold: Quarterly instalments if profits exceed £1,500,000; The limit is reduced where there are associated companies. See the instalments topic.
Official rate of interest: 3.75%; Used for beneficial loans, not for late-paid corporation tax.

Quick revision

TTP = total profits less qualifying charitable donations.
Augmented profits = TTP plus exempt dividends from non-group companies.
UK dividends received by a company are exempt and are not in TTP.
The rates are 19% for small profits and 25% for the main rate. Marginal relief applies between the lower limit of £50,000 and the upper limit of £250,000.
Marginal relief = (upper limit − augmented profits) × 3/200 × TTP ÷ augmented profits.
Divide both limits by the number of associated companies plus one, and time-apportion them for short periods.
An accounting period cannot exceed 12 months. A long period is split into the first 12 months and the remainder.
Qualifying charitable donations are deducted when paid, not when accrued.
The large company instalment threshold is £1,500,000 of augmented profits, adjusted for associates and short periods.
Instalments are 25% each of the estimated liability, normally due in months 7, 10, 13 and 16 from the start of the period.
Interest on underpaid tax is 8.5% and on overpaid tax is 3.5% (the assumed rates in the tables).
Always show your workings so you earn method marks.

Common mistakes

Leaving accounting depreciation in the trading profit and not deducting capital allowances. Fix: Always add back depreciation and amortisation, then deduct capital allowances as a separate step.
Including rent, interest or a gain in the trading profit as well as in its own section. Fix: Deduct each non-trading item from the accounts profit in the adjustment, then bring it into its own heading.
Treating an 18-month period of account as one CAP. Fix: A CAP can never exceed 12 months. Always split a long period into 12 months and the balance.
Time-apportioning trading profit after deducting capital allowances. Fix: Apportion profit before capital allowances, then deduct each CAP's own capital allowances, which are calculated separately.
Deducting qualifying charitable donations from trading profit. Fix: Add it back in the adjustment of profits. Deduct it later from total profits.
Leaving non-trade interest received in trading profit. Fix: Deduct it from accounts profit and show it as non-trading loan relationship income.
Including dividends received in taxable total profits and taxing them. Fix: Remember that dividends from UK companies are exempt for companies. Show them below the computation, not in it.
Using taxable total profits to test the £50,000 and £250,000 limits. Fix: Always work out augmented profits first, then compare with the limits.
Using taxable total profits instead of augmented profits to test the limits. Fix: Always write augmented profits as a separate line, even when there are no dividends.
Not adjusting the limits for associated companies, or dividing by the number of associates rather than the number plus one. Fix: Divide by (associates + 1). With two associated companies, divide by 3.

Exam tips

Show the trading profit adjustment as a separate working with a clear add-back and deduct layout. Marks are given for each item, even if the final figure is wrong.
In Section C, write a short note for any item that is exempt or not allowed, for example 'dividend exempt'. This earns method marks.
In objective test questions, watch for the trap of including dividends or charitable donations in the wrong place. The answer is all or nothing.
Check the length of the accounting period before using the limits. A period of less than 12 months reduces them.
Read the question for items that tell you the rate or limit to use, such as the number of associated companies or dividends received.
Always write the dates of each CAP at the top of your answer. Marks are given for correct periods.
State the months and the fractions, such as 12/18, so the marker can follow your working even if the arithmetic is wrong.
Remember the supplementary instruction: apportion to the nearest month and show all workings in Section C.