Taxation (UK) · The comprehensive computation of corporation tax liability

Dividends Received and Taxable Total Profits in TX-UK

Updated 11 October 2026 · Fact-checked

Dividends received by a UK company from other UK companies are exempt from corporation tax. You leave them out of taxable total profits. You add them back to get augmented profits, which you use only to test the £50,000 and £250,000 limits and for marginal relief and quarterly instalments.

Understand Dividends Received and Taxable Total Profits

A company pays corporation tax on its taxable total profits. These are made up of trading profits, property income, interest and other income, and chargeable gains, less reliefs such as qualifying charitable donations.

Dividends a company receives from other UK companies are exempt. They are not taxed again in the hands of the receiving company. So they never appear in the taxable total profits figure. Dividends are not deducted as a relief. They are simply left out of the computation.

They do not vanish altogether. Corporation tax rates depend on the size of the company's profits. Without a fix, a company could hold investments and keep its taxable profit low while still being large. So the rules use augmented profits. Augmented profits are taxable total profits plus exempt dividends received. For the exam, the dividends you add are those from non-group companies. Dividends from a 51% subsidiary are ignored for this purpose.

Augmented profits are used for three things only: comparing with the lower limit of £50,000 and the upper limit of £250,000, calculating marginal relief, and deciding whether quarterly instalments are due (a profit threshold of £1,500,000). The tax itself is always charged on taxable total profits.

The limits are for a 12-month period and are divided by the number of associated companies plus one, and time-apportioned for short periods. Check the question for these.

Key rules to remember

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.

How to solve Dividends Received and Taxable Total Profits questions

Use this method for any question that gives a company dividend income.

1List all income and gains. Mark dividends received as exempt.
2Compute taxable total profits from the other items, deducting qualifying charitable donations. Leave the dividends out.
3Work out whether the dividends are from a 51% group company or not. Only non-group dividends are added for augmented profits.
4Calculate augmented profits: taxable total profits plus the non-group exempt dividends.
5Adjust the £50,000 and £250,000 limits for the length of the period and for associated companies.
6Compare augmented profits with the limits. Below the lower limit, use 19%. Above the upper limit, use 25%. In between, use 25% less marginal relief.
7Apply the rate or marginal relief formula to taxable total profits, not augmented profits. Finish with the tax liability.

Quickest way: Dividend add-back shortcut

When to use it: Use this in objective test questions that ask for taxable total profits, augmented profits or the rate that applies.

Taxable total profits: ignore the dividend completely.
Augmented profits: take taxable total profits and add the dividend, unless it came from a 51% subsidiary.
Check the limits only against augmented profits.
If the answer is in the marginal band, use the formula with taxable total profits ÷ augmented profits as the fraction.
If the question asks for tax, multiply taxable total profits only.

Common mistakes in Dividends Received and Taxable Total Profits

Including dividends received in taxable total profits and taxing them.
Students treat dividends like other income because individuals pay tax on dividends.
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.
Students forget that the limits are compared to augmented profits.
Fix: Always work out augmented profits first, then compare with the limits.
Adding dividends from a 51% subsidiary to augmented profits.
Students add every dividend without checking the source.
Fix: Dividends from a 51% group company are excluded from augmented profits. Add only non-group dividends.
Charging corporation tax on augmented profits.
Students confuse the figure used for limits with the figure taxed.
Fix: Tax is charged on taxable total profits. Augmented profits only decide the rate and marginal relief.
Forgetting to adjust the limits for a short period or associated companies.
Students rush to the formula using £50,000 and £250,000.
Fix: Check the period length and number of associated companies before comparing profits with the limits.
Using augmented profits in the numerator of the marginal relief fraction.
Students mix up the two profit figures in the formula.
Fix: Use (upper limit − augmented profits) × 3/200 × taxable total profits ÷ augmented profits.

Worked examples

Example 1

Bryn Ltd has a 12-month period to 31 March 2026 (financial year 2025). It has trading profits of £180,000 and receives dividends of £20,000 from an unconnected UK company. It has no associated companies. Calculate taxable total profits, augmented profits and the corporation tax liability.

Show the solution

Taxable total profits: £180,000 trading profits. The £20,000 dividend is exempt and excluded.
Augmented profits: £180,000 + £20,000 = £200,000.
The limits are £50,000 and £250,000 for a 12-month period with no associated companies.
Augmented profits of £200,000 are between the limits, so marginal relief applies.
Tax at the main rate: £180,000 × 25% = £45,000.
Marginal relief: (£250,000 − £200,000) × 3/200 × £180,000 ÷ £200,000 = £50,000 × 0.015 × 0.9 = £675.
Corporation tax liability: £45,000 − £675 = £44,325.

Answer: Taxable total profits £180,000; augmented profits £200,000; corporation tax £44,325.

Example 2

Corwen Ltd has a 12-month period to 31 March 2026. It has trading profits of £230,000 and chargeable gains of £10,000. It pays a qualifying charitable donation of £5,000 and receives dividends of £30,000 from a UK company in which it holds a 5% interest. It has no associated companies. State the taxable total profits and the corporation tax liability.

Show the solution

Total profits before donations: £230,000 + £10,000 = £240,000.
Deduct the qualifying charitable donation: £240,000 − £5,000 = £235,000. This is taxable total profits.
The £30,000 dividend is exempt and excluded from taxable total profits.
Augmented profits: £235,000 + £30,000 = £265,000, as the 5% holding is not a group company.
Augmented profits are above £250,000, so the main rate of 25% applies and there is no marginal relief.
Corporation tax: £235,000 × 25% = £58,750.

Answer: Taxable total profits £235,000; augmented profits £265,000; corporation tax £58,750.

Exam tips

In objective tests, read the question for the word asked: taxable total profits or augmented profits. The dividend is in one and not the other.
Check whether the paying company is a 51% subsidiary. This is a common trap in the scenario.
In constructed response answers, show augmented profits as a separate working. Marks are given for the working even if later figures go wrong.
Show the marginal relief formula with the numbers substituted. Method marks are available.
Check the accounting period length and associated companies before you use the limits.

Practice questions from The comprehensive computation of corporation tax liability

Dividends Received and 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.

ACCA Strategic ProfessionalDividends and Distributions Received by Companies

Dividends Received and Taxable Total Profits: frequently asked questions

Are dividends received by a company taxable?

Dividends received from UK companies are exempt from corporation tax. They are left out of taxable total profits. They still count in augmented profits, which are used to test the profit limits.

What is the difference between taxable total profits and augmented profits?

Taxable total profits are the profits on which tax is charged. Augmented profits are taxable total profits plus exempt dividends from non-group companies. Augmented profits decide the rate and marginal relief.

Do I add dividends from a subsidiary to augmented profits?

No. Dividends from a 51% group company are not added. Only dividends from non-group companies are added.

Which profit figure do I use in the marginal relief formula?

Use both. The formula is (£250,000 − augmented profits) × 3/200 × taxable total profits ÷ augmented profits. The result is deducted from tax at 25% on taxable total profits.