The scope of corporation tax: formula sheet

Key formulas

UK resident company

Taxed on worldwide profits

A company incorporated in the UK is UK resident. A company incorporated abroad is UK resident if its central management and control is in the UK.

Non-UK resident company

Within corporation tax on profits attributable to a UK permanent establishment

This includes the PE's trading profits and chargeable gains on UK assets used by the PE. With no UK PE, UK property income is within income tax, not corporation tax.

Partnerships and individuals

Not within corporation tax

Partners and individuals pay income tax and capital gains tax. A corporate partner is taxed under corporation tax on its share.

Corporation tax rates (FA 2025 tables)

Small profits rate 19%; main rate 25%; limits £50,000 and £250,000

Given in the exam tax tables. Marginal relief applies between the limits.

Total (chargeable) profits

Trading profits + Property income + Interest and other income + Chargeable gains

Include only income within the charge. Exclude UK dividends received.

Taxable total profits (TTP)

Total profits − Qualifying charitable donations

Deduct the donations paid in the accounting period.

Corporation tax liability

TTP × rate

The ACCA tables give 19% small profits rate and 25% main rate for FY2023 to FY2025. Rate choice and marginal relief depend on augmented profits.

Augmented profits

TTP + Dividends received from non-group companies

Used for the £50,000 lower limit and £250,000 upper limit, not for the tax base itself.

Marginal relief

(Upper limit − Augmented profits) × 3/200 × TTP ÷ Augmented profits

Applies where augmented profits fall between £50,000 and £250,000, before any adjustment for a short period or associated companies.

Maximum length of a CAP

CAP ≤ 12 months

A period of account longer than 12 months is split into two or more CAPs.

Splitting a long period of account

First CAP = first 12 months; second CAP = the remainder

Never split the long period into two equal halves.

Time apportionment of profit

Profit for CAP = Profit for period × months in CAP ÷ months in period

Used for trading profit before capital allowances. Apportion to the nearest month, as the exam instructions state.

Capital allowances in a long period

Compute separately for each CAP; for a CAP shorter than 12 months, WDA and AIA × months in CAP ÷ 12

Compute the capital allowances for each CAP separately. The writing down allowance and annual investment allowance are reduced only for a CAP shorter than 12 months. A 12 month CAP gets the full 18% writing down allowance on the main pool.

Other income and gains

Income: by the period it accrues in. Gains: by the date of disposal.

Property and interest income are time-apportioned or allocated on an accruals basis. Chargeable gains go into the CAP in which the disposal occurs.

Limits for marginal relief

Limit = £50,000 or £250,000 × months in CAP ÷ 12 ÷ (1 + associated companies)

Compare the limits with augmented profits. Marginal relief = (upper limit − augmented profits) × 3/200 × taxable total profits ÷ augmented profits.

Rates

Small profits rate 19%; main rate 25%

Financial years 2023, 2024 and 2025. Given in the exam.

Limits (12 months, no associates)

Lower limit £50,000; upper limit £250,000

Compare with augmented profits, not TTP.

Marginal relief

(Upper limit − augmented profits) × 3/200 × TTP ÷ augmented profits

Only when augmented profits are between the adjusted limits. Given in the exam.

Adjusted limits

Limit ÷ (1 + associated companies) × months ÷ 12

Apply to both limits. Do not change the 3/200 fraction.

Augmented profits

TTP + exempt dividends from non-group companies

Dividends from 51% subsidiaries or other group companies are not added.

Augmented profits

Augmented profits = Taxable total profits + Franked investment income

FII is dividends received from non-group companies. Use the actual cash dividend received, with no gross-up.

Rate bands (financial years 2023 to 2025)

Small profits rate 19% if augmented profits ≤ £50,000; main rate 25% if augmented profits ≥ £250,000

Between £50,000 and £250,000 the main rate applies with marginal relief.

Marginal relief

(£250,000 − augmented profits) × 3/200 × TTP ÷ augmented profits

Deduct from tax at 25% on TTP. This is given in the ACCA tax tables.

Tax charged

Corporation tax = TTP × rate

Tax is never charged on FII.

Return filing deadline

12 months after the end of the period of account

Late filing brings fixed and then tax-geared penalties, covered in the penalties topics.

Normal payment date

9 months and 1 day after the end of the accounting period

Applies to companies that are not large. Example: year to 31 December 2025 gives 1 October 2026.

Large company test

Augmented profits > £1,500,000 ÷ (associated companies + 1)

Time-apportion the threshold for a short accounting period. Use augmented profits, not just taxable total profits. A large company that was not large in the previous 12-month period is not required to pay by instalments if its augmented profits do not exceed £10,000,000 ÷ (associated companies + 1). Otherwise it pays by instalments.

Very large company test

Augmented profits > £20,000,000 ÷ (associated companies + 1)

Not in the tax rates table supplied in the exam, so learn it. Time-apportion for short periods.

Large company instalments (12-month period)

4 equal instalments, due 6 months and 13 days, 9 months and 13 days, 12 months and 13 days after the start, and 3 months and 14 days after the end of the period

For a year ending 31 December these are 14 July, 14 October, 14 January and 14 April. The first two fall in the period; the last two fall after the year end. Each is 25% of the estimated liability.

Very large company instalments (12-month period)

4 equal instalments due 2 months and 13 days, 5 months and 13 days, 8 months and 13 days and 11 months and 13 days after the start of the period

For a year ending 31 December these are 14 March, 14 June, 14 September and 14 December, all within the period.

Interest rates (supplied in exam)

Underpaid tax 8.50%; overpaid tax 3.50%

Interest = tax × rate × months ÷ 12, from the due date to the date of payment.

Quick revision

• Corporation tax is charged on taxable total profits of each chargeable accounting period.
• TTP = trading, property, interest and other income plus chargeable gains, less qualifying charitable donations.
• A chargeable accounting period can never exceed 12 months.
• Main rate is 25%; small profits rate is 19%.
• Lower limit is £50,000 and upper limit is £250,000 for a 12-month period.
• Marginal relief = (£250,000 – augmented profits) × 3/200 × TTP ÷ augmented profits.
• Augmented profits = TTP plus exempt distributions (dividends) received from companies that are not 51% group companies. Dividends from 51% group companies are ignored.
• Limits are reduced for short periods and shared among associated companies.
• Marginal relief applies only where augmented profits are between the lower and upper limits, as adjusted for associated companies and short periods.
• Quarterly instalments apply where augmented profits exceed the £1,500,000 threshold. Divide the threshold by associates plus one and time-apportion it for short periods. Instalment payers pay on different dates from other companies.
• A company that does not pay by instalments pays its tax 9 months and 1 day after the end of the accounting period. The return is due 12 months after the end of the period.
• Late filing and late payment have their own consequences, so know which date applies to which.

Common mistakes

• Saying a partnership pays corporation tax. Fix: A partnership is not a separate taxpayer. Partners are taxed on their shares.
• Taxing a non-resident company on its worldwide profits. Fix: Only UK resident companies have worldwide profits taxed. Non-residents are taxed on UK PE profits.
• Deducting charitable donations in the trading profit working and again from total profits. Fix: Add it back in the adjustment of profit, then deduct it once from total profits.
• Including UK dividends received in TTP. Fix: Exempt dividends are excluded from TTP. Use them only to find augmented profits.
• Treating a 15 month period of account as one CAP. Fix: Any period above 12 months must be split into a 12 month CAP and a remainder.
• Splitting a long period into two equal parts. Fix: The first CAP is always exactly the first 12 months. The remainder is the second CAP.
• Comparing TTP rather than augmented profits with the limits. Fix: Always compute augmented profits first and use them for the band and in the marginal relief formula.
• Dividing the limits by the number of associated companies instead of that number plus one. Fix: Divide by (1 + associates). With one associate, divide by 2.
• Charging corporation tax on the dividends Fix: Dividends from UK companies are exempt. Add them only to find augmented profits, never to the tax base.
• Adding dividends from a 51% subsidiary Fix: Dividends from group companies are not FII. Check the relationship before adding.

Exam tips

• In objective tests, first decide if the entity is a company. Partnerships and individuals are a common wrong-answer trap.
• Write the residence test in one line: incorporation or central management and control.
• For non-residents, always mention the permanent establishment, and say that the profits attributable to it are within corporation tax.
• Do not quote rates unless asked. If needed, the 19% and 25% rates and the £50,000 and £250,000 limits are in the tax tables.
• Always show a full computation with labelled lines. Marks are given for each source and for the donation deduction.
• In Section C, state your treatment of each item, such as dividends being exempt, in a few words. This secures method marks.
• If a question gives accounts profit, work through add-backs and deductions step by step before you reach the total profits line.
• For objective test questions, check whether the question asks for chargeable profits, TTP or augmented profits, as the answers differ.