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Taxation (UK) · The scope of corporation tax

Augmented Profits and Dividend Income for ACCA TX-UK

Updated 11 October 2026 · Fact-checked

Augmented profits are a company's taxable total profits plus franked investment income (FII), which means dividends received from non-group companies. You use augmented profits only to test the £50,000 and £250,000 limits for the corporation tax rate. You still charge tax on taxable total profits only.

Understand Augmented Profits and Dividend Income

A company pays corporation tax on its taxable total profits (TTP). UK dividends received from other companies are generally exempt, so they are not in TTP. They never get taxed.

But the tax system does not want a company to escape the main rate just because it takes its income as dividends. So it uses a wider measure, called augmented profits, to decide which rate applies.

Augmented profits = TTP + franked investment income (FII). In TX-UK, FII is dividends received from companies that are not 51% subsidiaries or other group members. Dividends from a 51% group company are ignored completely, so they are not added.

Augmented profits do two jobs only. They are compared with the lower limit of £50,000 and the upper limit of £250,000 to find the rate. They also feed into the marginal relief formula. The tax itself is still charged on TTP. Think of FII as a test amount, not a taxed amount.

Limits are for a 12-month period. They are reduced for short accounting periods and divided by the number of associated companies plus one. Those adjustments are covered in separate topics.

Key rules to remember

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.

How to solve Augmented Profits and Dividend Income questions

Use this method for any question on augmented profits or the rate that applies to a company.

  1. 1Compute taxable total profits (TTP) for the accounting period.
  2. 2Identify dividends received. Remove any from 51% group companies, since they are not FII.
  3. 3Add the remaining dividends, at the amount actually received, to TTP to get augmented profits.
  4. 4Adjust the £50,000 and £250,000 limits for a short period or for associated companies, if the question says so.
  5. 5Compare augmented profits with the limits to decide: small profits rate, main rate, or main rate with marginal relief.
  6. 6Apply the rate to TTP only. If marginal relief applies, work out 25% × TTP and deduct the relief.
  7. 7State your final corporation tax liability and show the augmented profits figure clearly.

Quickest way: Three-line augmented profits check

When to use it: Objective test questions, where you must pick the rate or the tax figure quickly.

  1. Write TTP + FII = augmented profits. Ignore group dividends.
  2. Compare with £50,000 and £250,000. If below £50,000, tax is TTP × 19%. If at or above £250,000, tax is TTP × 25%.
  3. In the middle, work out TTP × 25% and subtract (£250,000 − AP) × 3/200 × TTP ÷ AP.

Common mistakes in Augmented Profits and Dividend Income

  • Charging corporation tax on the dividends

    Students see dividend income and assume it is taxable profit.

    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

    Students do not check who paid the dividend.

    Fix: Dividends from group companies are not FII. Check the relationship before adding.

  • Using TTP instead of augmented profits to test the limits

    TTP is the number students have just calculated.

    Fix: Always compute augmented profits first, then compare with £50,000 and £250,000.

  • Using augmented profits in the marginal relief numerator wrongly

    Students forget the formula uses TTP ÷ augmented profits as a fraction.

    Fix: Write the formula out: (£250,000 − AP) × 3/200 × TTP ÷ AP. Then deduct from tax on TTP at 25%.

  • Forgetting to adjust limits for a short period or associated companies

    Students apply the full-year limits automatically.

    Fix: Read the question for the period length and any associated companies before comparing.

Worked examples

Example 1

Mill Ltd has taxable total profits of £180,000 for the year ended 31 March 2026. It received dividends of £20,000 from an unconnected UK company. It has no associated companies. Calculate its corporation tax liability.

Show the solution
  1. Augmented profits = £180,000 + £20,000 = £200,000.
  2. £200,000 is between £50,000 and £250,000, so the main rate applies with marginal relief.
  3. Tax at 25% on TTP = £180,000 × 25% = £45,000.
  4. Marginal relief = (£250,000 − £200,000) × 3/200 × £180,000 ÷ £200,000.
  5. = £50,000 × 0.015 × 0.9 = £675.
  6. Corporation tax = £45,000 − £675 = £44,325.

Answer: £44,325

Example 2

Kiln Ltd has taxable total profits of £60,000 for a 12-month period. It received dividends of £30,000 from a 40% shareholding in an unconnected company and £15,000 from a 75% subsidiary. It has no associated companies. State the augmented profits and the corporation tax.

Show the solution
  1. The £15,000 from the 75% subsidiary is a group dividend, so it is not FII.
  2. FII = £30,000.
  3. Augmented profits = £60,000 + £30,000 = £90,000.
  4. £90,000 is between £50,000 and £250,000, so marginal relief applies.
  5. Tax at 25% on TTP = £60,000 × 25% = £15,000.
  6. Marginal relief = (£250,000 − £90,000) × 3/200 × £60,000 ÷ £90,000.
  7. = £160,000 × 0.015 × 2/3 = £2,400 × 2/3 = £1,600.
  8. Corporation tax = £15,000 − £1,600 = £13,400.

Answer: Augmented profits £90,000; corporation tax £13,400

Exam tips

  • Read the dividend line carefully. Check whether the payer is a 51% group company before you add it.
  • In objective tests, the limit comparison is often the whole question. Work out augmented profits before any tax figure.
  • In written questions, show the augmented profits line on its own. It earns a mark even if later figures are wrong.
  • Check the question for a short period or associated companies before using £50,000 and £250,000.
  • Use the marginal relief formula from the tax tables provided. Do not rely on memory for the 3/200 fraction.

Practice questions from The scope of corporation tax

Augmented Profits and Dividend Income: frequently asked questions

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

Taxable total profits are the amount on which corporation tax is charged. Augmented profits are TTP plus franked investment income. You use augmented profits only to decide the rate band.

What is franked investment income in TX-UK?

It is dividends received by a company from other companies that are not its 51% group members. It is not taxed in the receiving company. It is added to TTP to test the rate limits.

Are dividends from a subsidiary included in augmented profits?

No. Dividends from a 51% subsidiary or other group company are not FII, so you ignore them. Only dividends from non-group companies are added.

Do I tax the dividends at the main rate?

No. UK dividends received by a company are exempt. They only affect which rate applies to the TTP, through augmented profits.