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ACCA Applied Skills · Taxation (UK)

Taxable Total Profits for ACCA TX-UK

Taxable total profits (TTP) are the company profits that corporation tax is charged on. You add trading profit, property income, interest and chargeable gains, then deduct qualifying charitable donations. Dividends received from other companies, UK or overseas, are not in TTP. Augmented profits add dividends from non-51%-group companies; group dividends are not added. Then apply the rate.

What this chapter covers

This chapter is the core of corporation tax in TX-UK. A company pays tax on its taxable total profits for each accounting period. You build that figure from several streams: adjusted trading profit after capital allowances, property business income, non-trading loan relationship (interest) income, and chargeable gains. You then deduct qualifying charitable donations.

The chapter also covers what happens after you reach the figure. You decide the rate using the lower and upper limits, which depend on the length of the period and the number of associated companies. You work out marginal relief where it applies. You also decide whether the company must pay by quarterly instalments.

This chapter links to much of the rest of the paper. Adjusting profit uses the same rules you learn for sole traders. Capital allowances and chargeable gains appear again in other areas. Losses, groups and VAT questions all start from a taxable total profits computation. If you can build TTP quickly and accurately, later chapters become easier.

Corporation tax appears in the objective test sections and, very often, in the long constructed-response questions, where a full TTP computation is a standard task. The method is mechanical, so careful students can collect most of the marks. Objective test questions are marked all or nothing, so small slips in dates, rates or limits cost you the whole question. The chapter rewards you for knowing the process, using the rates ACCA provides, and laying out workings clearly.

Taxable total profits: topics in the order to study them

  1. 1Corporation Tax Basics and Chargeable Accounting PeriodsStart here. You need to know what a chargeable accounting period is and how a long period is split before any computation makes sense.
  2. 2Adjusted Trading Profit and Capital AllowancesTrading profit is the biggest and most tested stream, and capital allowances feed straight into it.
  3. 3Property Business, Interest and Other IncomeOnce trading profit is done, add the other income streams that make up the TTP layout.
  4. 4Chargeable Gains for CompaniesGains are the last stream to include, and company gains follow their own rules, so learn them after income.
  5. 5Qualifying Charitable Donations and Dividend IncomeDonations are deducted from total profits, and dividends are excluded but matter for augmented profits, so you need all the streams first.
  6. 6Corporation Tax Rates and Marginal ReliefYou can only choose the rate and calculate marginal relief once you have TTP and augmented profits.
  7. 7Short Periods and Quarterly Instalment PaymentsFinish with short periods and payment dates. They build on limits and rates, and they test details of timing.

How to prepare Taxable total profits

Treat this chapter as one computation you practise until it is automatic. Learn each stream, then keep putting them together in the same layout.

  1. Learn the standard TTP layout: trading profit, property income, interest, chargeable gains, then less qualifying charitable donations. Write it out from memory.
  2. Practise adjustment of profit separately, including capital allowances, until you can do it quickly and correctly. Use the allowance rates ACCA gives you in the exam, but know how each pool works.
  3. Practise the company rules that differ from personal tax: gains are included in profits, there is no annual exempt amount for companies, and UK dividends received are left out of TTP.
  4. Learn how to find the limits for the period. The lower and upper limits are time-apportioned for short periods and divided by the number of associated companies.
  5. Practise the rate step: decide whether profits are below the lower limit, above the upper limit, or in between. For the middle band, use the marginal relief formula from the exam tax rates sheet.
  6. Learn the quarterly instalment rules and the profit threshold. Then do mixed objective test questions in timed sets, followed by full constructed-response questions with clear workings.
  7. Mark your own answers by finding where marks were lost: layout, an omitted item, a wrong period or a wrong limit. Redo those weak areas.

Common mistakes in Taxable total profits

  • Deducting qualifying charitable donations from trading profit instead of from total profits.

    Fix: Always show the donation as the last deduction in the TTP layout, after all income and gains.

  • Including dividends received from other companies in taxable total profits.

    Fix: Leave them out of TTP, whether they are from UK or overseas companies. Add dividends from non-51%-group companies only when you work out augmented profits for limits and marginal relief.

  • Using the full £50,000 and £250,000 limits for a short period or for a company with associated companies.

    Fix: Before choosing the rate, write down the limits for this period: time-apportioned if the period is shorter than 12 months, and divided by 1 plus the number of associated companies.

  • Applying an annual exempt amount to a company's gains.

    Fix: Remind yourself that companies get no annual exempt amount. Their gains are taxed through TTP.

  • Using the wrong augmented profits figure in marginal relief.

    Fix: Work out augmented profits as TTP plus dividends received from non-51%-group companies (dividends from 51% group companies are not added), then use the formula carefully, with TTP in the numerator.

  • Ignoring the length of the period of account when calculating capital allowances or apportioning profits.

    Fix: Check the period dates first. A period of account longer than 12 months is split into separate chargeable accounting periods, and its profits are time-apportioned between them. For a short period, time-apportion the writing down allowances and the annual investment allowance, as well as the limits.

Last-day revision: Taxable total profits

  • TTP is the profit charged to corporation tax for a chargeable accounting period.
  • A chargeable accounting period cannot be longer than 12 months.
  • TTP layout: trading profit, property income, interest, chargeable gains, less qualifying charitable donations.
  • Dividends received from other companies, UK or overseas, are not in TTP. Augmented profits = TTP plus dividends from non-51%-group companies. Dividends from 51% group companies are not added.
  • Companies have no annual exempt amount for chargeable gains.
  • The small profits rate is 19% and the main rate is 25% in the rates provided.
  • The lower limit is £50,000 and the upper limit is £250,000 for a 12-month period.
  • Marginal relief = (upper limit – augmented profits) × 3/200 × TTP ÷ augmented profits.
  • Limits are time-apportioned for periods shorter than 12 months and divided by (1 + the number of associated companies).
  • The quarterly instalment profit threshold is £1,500,000.
  • Qualifying charitable donations are deducted from total profits, not from trading profit.
  • Capital allowances: main pool 18%, special rate pool 6%, annual investment allowance 100% up to £1,000,000.

Taxable total profits practice questions

Taxable total profits in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Taxable total profits: frequently asked questions

What are taxable total profits in TX-UK?

They are the profits on which a company pays corporation tax for a chargeable accounting period. You total trading profit, property income, interest and chargeable gains, then deduct qualifying charitable donations.

Are dividends part of taxable total profits?

No. Dividends received from UK and overseas companies are not included in taxable total profits. Augmented profits are taxable total profits plus dividends received from non-51%-group companies. Augmented profits are used to decide the limits and marginal relief. Dividends from 51% group companies are not added.

Which corporation tax rates and limits will I get in the exam?

ACCA gives you the tax rates and allowances in the exam. The rates provided are a small profits rate of 19% and a main rate of 25%, with limits of £50,000 and £250,000, and a standard fraction of 3/200. You still need to know how to apply them.

How do I calculate marginal relief?

Use the formula: (upper limit – augmented profits) × standard fraction × taxable total profits ÷ augmented profits. First adjust the lower and upper limits for short periods and for associated companies. Marginal relief applies where augmented profits fall between the adjusted limits. Then deduct it from the tax at the main rate on TTP.

When must a company pay corporation tax by quarterly instalments?

Instalments apply to large companies, using a profit threshold of £1,500,000 in the rates provided. The threshold is adjusted for short periods and associated companies, so check the period and group facts in each question.