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Taxation (UK) · Taxable total profits

Qualifying Charitable Donations and Dividend Income for Companies

Updated 11 October 2026 · Fact-checked

A company deducts qualifying charitable donations paid in the period from its total profits to reach taxable total profits. Dividends received from UK companies are exempt, so you leave them out of taxable total profits. You still add them to taxable total profits to get augmented profits, but only for rate and limit tests.

Understand Qualifying Charitable Donations and Dividend Income

Corporation tax starts with the company's profits from trading, property, interest and chargeable gains. These are added together to give total profits. You then deduct reliefs to reach taxable total profits (TTP), the figure on which tax is charged.

One deduction is the qualifying charitable donation (QCD). This is a gift by the company to a charity. It is deducted from total profits, so the company gets tax relief at its corporation tax rate. A gift only counts if it qualifies. Gifts of goods or sponsorship in return for advertising are not treated this way.

A QCD is a charge on income, not a trading expense. So if the accounts show a donation in the expenses, you add it back in the adjustment of profit. Then you deduct it again lower down, in the computation of taxable total profits. Many marks are lost by deducting it twice or not at all.

Dividends received from UK companies are exempt from corporation tax. They are not part of total profits and not part of TTP. You show them separately in the computation as a memo item.

They still matter. Augmented profits are TTP plus dividends received from non-group companies. Augmented profits decide whether the company falls under the lower limit, between the limits, or above the upper limit. They also decide whether quarterly instalments apply. Dividends therefore affect the rate of tax, even though they are not taxed themselves.

Key rules to remember

Taxable total profits
TTP = Total profits − qualifying charitable donations (QCDs) paid in the period
Total profits exclude UK dividends received. Deduct QCDs after adding up all income and gains.
Treatment of UK dividends received
UK dividends received = exempt; not included in total profits or TTP
Show them below the computation as a memo line.
Augmented profits
Augmented profits = TTP + dividends received from non-group companies
Used for the £50,000 and £250,000 limits and the £1,500,000 quarterly instalment threshold. Limits are reduced for associated companies and short periods.
Corporation tax rates (FY2023 to FY2025)
Small profits rate 19%; main rate 25%; lower limit £50,000; upper limit £250,000
The limits are compared with augmented profits, not TTP.
Marginal relief
(Upper limit − augmented profits) × standard fraction × TTP ÷ augmented profits; standard fraction = 3/200
Applies where augmented profits fall between the lower and upper limits. Deduct it from tax at the main rate.

How to solve Qualifying Charitable Donations and Dividend Income questions

Use this order for any question that includes donations or dividends in a company computation.

  1. 1List each source of income: adjusted trading profit, property income, interest and chargeable gains.
  2. 2Check the accounts for donations. If a donation is charged in the profit figure, add it back in the adjustment of profit.
  3. 3Decide whether each donation is a qualifying charitable donation, and use only amounts paid in the accounting period.
  4. 4Identify dividends. Exclude UK dividends from total profits. Note them as a memo item.
  5. 5Add the income items to get total profits, then deduct the QCDs to get taxable total profits.
  6. 6Work out augmented profits: TTP plus dividends from non-group companies.
  7. 7Compare augmented profits with the limits, adjusted for associated companies or a short period if given, and choose the rate. Use marginal relief if between the limits.
  8. 8Calculate corporation tax on TTP.

Quickest way: Three-line check for donations and dividends

When to use it: Use this in Section A or B objective questions when you only need TTP, augmented profits or the tax rate.

  1. Write TTP = profits excluding dividends, less QCDs.
  2. Write augmented profits = TTP + dividends.
  3. Compare augmented profits with £50,000 and £250,000, then apply the correct rate to TTP.

Common mistakes in Qualifying Charitable Donations and Dividend Income

  • Including UK dividends received in taxable total profits.

    Students treat dividends like interest, which is taxable.

    Fix: Remember that UK dividends are exempt. Keep them out of TTP and use them only for augmented profits.

  • Ignoring dividends when testing the profit limits.

    Students assume exempt income has no effect at all.

    Fix: Always compute augmented profits before choosing the rate. Add dividends from non-group companies to TTP.

  • Deducting a donation twice.

    The donation is already an expense in the accounts and is also deducted as a QCD.

    Fix: Add the donation back in the adjustment of profit, then deduct it once as a QCD.

  • Forgetting to add back the donation, so the QCD is deducted only in the trading expenses.

    Students think any charitable payment is simply a business expense.

    Fix: Treat a QCD as a deduction from total profits. Adjust trading profit for it, then deduct it in the TTP computation.

  • Deducting a donation that does not qualify.

    Students assume any gift to a charity gets relief.

    Fix: Read the question for the nature of the payment. Gifts that do not qualify are not deducted as QCDs. Deduct amounts paid in the period only.

  • Using TTP instead of augmented profits in the marginal relief formula's first bracket.

    Students mix up the two profit figures.

    Fix: Use augmented profits in (upper limit − augmented profits) and in the divisor. Use TTP as the numerator multiplier.

Worked examples

Example 1

Brook Ltd has a 12-month accounting period to 31 March 2026 (no associated companies). Adjusted trading profit is £180,000 and it has chargeable gains of £20,000. It received UK dividends of £10,000 from an unconnected company and paid a qualifying charitable donation of £5,000 (not yet deducted in the trading profit). Compute taxable total profits and corporation tax.

Show the solution
  1. Total profits = trading profit £180,000 + gains £20,000 = £200,000. The dividends are exempt and excluded.
  2. Deduct the QCD: £200,000 − £5,000 = £195,000. This is TTP.
  3. Augmented profits = £195,000 + £10,000 = £205,000.
  4. Lower limit is £50,000 and upper limit is £250,000. Augmented profits of £205,000 fall between them, so marginal relief applies.
  5. Tax at 25% on TTP = £195,000 × 25% = £48,750.
  6. Marginal relief = (£250,000 − £205,000) × 3/200 × £195,000 ÷ £205,000 = £45,000 × 0.015 × 0.95122 = £675 × 0.95122 = £642.07.
  7. Corporation tax = £48,750 − £642 = £48,108.

Answer: TTP is £195,000. Corporation tax is approximately £48,108, after marginal relief of about £642.

Example 2

Alder Ltd prepares accounts for the year to 31 March 2026. The profit before tax is £90,000 after charging a £3,000 donation to a registered charity (a qualifying charitable donation) and after including £12,000 of UK dividends received from an unconnected company. There are no other adjustments, and no associated companies. Compute TTP, augmented profits and the corporation tax liability.

Show the solution
  1. Start with profit £90,000.
  2. Remove the dividends because they are exempt: £90,000 − £12,000 = £78,000.
  3. Add back the donation, which is not a trading expense: £78,000 + £3,000 = £81,000. This is the adjusted trading profit.
  4. Deduct the QCD to reach TTP: £81,000 − £3,000 = £78,000.
  5. Augmented profits = £78,000 + £12,000 = £90,000.
  6. Augmented profits are above the £50,000 lower limit and below the £250,000 upper limit, so marginal relief applies.
  7. Tax at 25% = £78,000 × 25% = £19,500.
  8. Marginal relief = (£250,000 − £90,000) × 3/200 × £78,000 ÷ £90,000 = £160,000 × 0.015 × 0.86667 = £2,400 × 0.86667 = £2,080.
  9. Corporation tax = £19,500 − £2,080 = £17,420.

Answer: TTP is £78,000 and augmented profits are £90,000. Corporation tax is £17,420.

Exam tips

  • Set out the computation in a fixed layout with a memo line for dividends. It shows the marker you know they are exempt.
  • Check every profit figure for a donation or a dividend already included. Adjust it before you start adding.
  • In objective questions, work out augmented profits first when the question asks about the rate or the limits.
  • Remember the limits shown are for a 12-month period and may be reduced for associated companies or a short period, so read the period length.

Practice questions from Taxable total profits

Qualifying Charitable Donations and Dividend Income in other exams

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

Qualifying Charitable Donations and Dividend Income: frequently asked questions

Are dividends taxable for companies in the UK?

Dividends received from UK companies are exempt from corporation tax. They are left out of total profits and taxable total profits. They are still added to TTP to find augmented profits.

How do I treat a donation in a corporation tax computation?

If the donation qualifies, add it back in the adjustment of trading profit if it was charged there. Then deduct it from total profits to reach taxable total profits. It is relieved once only.

Why do dividends matter if they are exempt?

Augmented profits include dividends from non-group companies. Augmented profits are compared with the lower and upper limits. So dividends can push a company into a higher rate or reduce marginal relief.

Is taxable total profits the same as augmented profits?

No. Taxable total profits are what you charge tax on. Augmented profits are TTP plus dividends received from non-group companies, and are used only for rate and limit tests.