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ACCA Applied Skills · Taxation (UK)

The Scope of Corporation Tax for ACCA TX-UK

Corporation tax is charged on the taxable total profits of companies for each chargeable accounting period. You add up the company's income and chargeable gains, deduct reliefs and qualifying charitable donations, then apply the rate. The main rate is 25%. Marginal relief applies where profits fall between £50,000 and £250,000.

What this chapter covers

This chapter sets the frame for every company tax question in TX-UK. It tells you which entities pay corporation tax, which profits are charged, over which period, at what rate, and when the return and the tax are due. You are not yet computing trading profit in detail. You are building the skeleton into which those figures later drop.

The core idea is the layout of a corporation tax computation. Trading profit, property income, interest and other income are added to chargeable gains. Deducting qualifying charitable donations gives taxable total profits (TTP). The rate is applied to TTP. Dividends received from other companies are normally left out of TTP, but they matter for the limits through augmented profits.

The chapter links to the rest of the paper in several ways. Adjustment of profit and capital allowances feed the trading profit line. Chargeable gains for companies feed the gains line. Later chapters on groups, losses and VAT depend on the accounting period and limits you learn here. Section B objective test cases and Section C written questions both use this material, so you need accuracy on the layout and the rates.

Almost every company question in TX-UK, whether a 2-mark objective question or a long constructed-response question, ends in a corporation tax computation. If you get the period, the rate or the limits wrong, you lose marks even when your profit figures are right. The rules here are short, rule-based and predictable, so they are some of the easiest marks to secure. Objective questions are marked all or nothing, so you must be exact on dates, limits and the marginal relief formula.

The scope of corporation tax: topics in the order to study them

  1. 1Companies Within the Charge to Corporation TaxStart with who pays, because every later rule applies only to companies within the charge.
  2. 2Chargeable Profits and Taxable Total ProfitsLearn the computation layout next, as all other topics refer to taxable total profits.
  3. 3Accounting Periods and Chargeable Accounting PeriodsYou need the period rules before rates and limits, because limits are scaled for short periods and periods cannot exceed 12 months.
  4. 4Corporation Tax Rates and Marginal ReliefWith the period fixed, you can apply the 19% and 25% rates and the marginal relief formula.
  5. 5Augmented Profits and Dividend IncomeAugmented profits drive the limits and the marginal relief formula, so study them once the basic rates are clear.
  6. 6Filing Deadlines, Payment Dates and Quarterly InstalmentsFinish with administration, which uses the period and the profit levels you have just learned.

How to prepare The scope of corporation tax

Work from the computation outward. Master the layout first, then add the rules that change the rate or the dates.

  1. Read about who is within the charge, and write a short list of what is and is not a company for this purpose.
  2. Learn the corporation tax computation layout until you can write it from memory, line by line, down to taxable total profits.
  3. Practise splitting a period of account into chargeable accounting periods, and learn the 12-month maximum.
  4. Memorise the rates from the tax tables: 19% small profits rate, 25% main rate, lower limit £50,000 and upper limit £250,000. The tables show identical rates and limits for financial years 2023, 2024 and 2025, but the rule applies per financial year. If a period spans 31 March, apply the rates and limits separately to each part of the period. Remember the limits are divided by the number of associated companies plus one, and time-apportioned for short periods.
  5. Practise marginal relief: (upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits. Do at least five computations with and without dividends.
  6. Learn the dates. For a company that pays in one amount, tax is due 9 months and 1 day after the end of the accounting period, and the return is due 12 months after the end of the period. Companies that pay by quarterly instalments pay on different dates, so learn those rules separately. Then do a mixed set of objective questions and one full written computation under timed conditions.

Common mistakes in The scope of corporation tax

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

    Fix: Leave them out of TTP. Add dividends from companies that are not 51% group companies to TTP to get augmented profits when testing the limits. Ignore dividends from 51% group companies when you work out augmented profits.

  • Using full-year limits for a short accounting period or for a company with associates.

    Fix: Before choosing a rate, scale the limits by the period length and divide by associated companies plus one. If the period spans two financial years, apply the rates and limits separately to each part. The rates are the same in financial years 2023, 2024 and 2025, but you must still split the period.

  • Using TTP instead of augmented profits in the marginal relief formula.

    Fix: Use augmented profits in the bracket and in the denominator, and TTP only in the numerator.

  • Treating a period of account longer than 12 months as one chargeable period.

    Fix: Split it into a 12-month period followed by the remainder, and allocate profits as the rules require.

  • Mixing up filing and payment dates.

    Fix: Write both on one line in your notes: tax is due 9 months and 1 day after the end of the accounting period, and the return is due 12 months after the end of the period. Practise stating both for a given year end. Remember that companies paying by quarterly instalments pay on different dates instead of one payment.

  • Forgetting that the quarterly instalment threshold is also adjusted, or treating £1,500,000 as a simple fixed test.

    Fix: Apply the same associated company and short period adjustments as for the rate limits. Divide £1,500,000 by the number of associated companies plus one, and time-apportion it for a short period, before you test augmented profits against it.

Last-day revision: The scope of corporation tax

  • 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.

The scope of corporation tax practice questions

The scope of corporation tax in other exams

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

The scope of corporation tax: frequently asked questions

What is taxable total profits in corporation tax?

It is the company's total income and chargeable gains for the period, less qualifying charitable donations. Corporation tax is calculated on this figure. Dividends from other companies are normally excluded.

What are the corporation tax rates in TX-UK?

The small profits rate is 19% and the main rate is 25%. The lower limit is £50,000 and the upper limit is £250,000. Between these limits, marginal relief applies.

How do I calculate marginal relief?

Use (upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits. Deduct the result from corporation tax at the main rate. It applies only when augmented profits fall between the lower and upper limits, as adjusted for associated companies and short periods.

What are augmented profits?

Augmented profits are taxable total profits plus exempt distributions (dividends) received from companies that are not 51% group companies. Dividends from 51% group companies are ignored. Augmented profits are used to test which rate applies and to compute marginal relief. They are also used for the quarterly instalment threshold.

Do I need to learn the tax rates for the exam?

ACCA provides the rates, limits and the marginal relief formula in the tax tables. You still need to know how to apply them, including adjustments for short periods and associated companies, so practise with the tables open.