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ACCA Strategic Professional · Advanced Taxation (UK)

Corporation Tax: Taxable Total Profits for ATX-UK

Taxable total profits are a company's total income and chargeable gains for an accounting period, less reliefs such as qualifying charitable donations and losses. You then apply 19%, 25% or marginal relief based on augmented profits, adjusted for associated companies and short periods. Large companies also pay by instalments, and late or early payments carry interest.

What this chapter covers

This chapter is the base of all company tax in ATX-UK. You build taxable total profits (TTP) from trading profit, property income, non-trading loan relationship income and chargeable gains. You deduct reliefs, then work out the corporation tax. Along the way you meet the small profits rate of 19%, the main rate of 25%, and marginal relief between the £50,000 lower limit and the £250,000 upper limit.

The chapter then adds the features that change the answer. Associated companies and short accounting periods reduce the limits. Dividends received are not in TTP, but they can sit in augmented profits. Large companies pay in quarterly instalments, and interest runs on underpaid and overpaid tax. The rates used are those in the tax tables ACCA gives you: 8.50% on underpaid tax and 3.50% on overpaid tax.

This chapter feeds almost everything else in the corporate part of the paper. Group relief, chargeable gains for groups, loss relief, close companies, overseas aspects and company reorganisations all end in a corporation tax liability. In Section A case studies you will usually need the rate and the payment date to advise on cash flow. Get this chapter secure first and the later chapters become far easier.

Corporation tax appears in nearly every ATX-UK sitting, often as a calculation inside a bigger scenario. The marks are mostly for method, so a clear working earns credit even if one number is wrong. The professional skills marks also reward you for explaining the tax cost and the payment timetable to a client. Because these rules sit under group, loss and gains questions, errors here carry through and cost marks in other parts of the same question. Time spent making this chapter automatic pays back across the whole exam.

Corporation tax: taxable total profits: topics in the order to study them

  1. 1Computing Taxable Total ProfitsEverything else depends on the figure you reach here, so learn the layout and what goes in and out of TTP first.
  2. 2Dividends and Distributions Received by CompaniesYou need to know that dividends are outside TTP but can be in augmented profits before you apply any rate.
  3. 3Corporation Tax Rates and Marginal ReliefWith TTP and augmented profits known, you can choose 19%, 25% or marginal relief and use the formula from the tax tables.
  4. 4Associated Companies and Short Accounting PeriodsThese rules adjust the limits you just learned, so they come after you can apply the standard limits.
  5. 5Quarterly Instalment Payments for Large CompaniesYou need the final liability and the adjusted limits to decide whether instalments apply and when they fall due.
  6. 6Interest on Underpaid and Overpaid Corporation TaxThis closes the chapter: it deals with what happens when tax is paid late or too early, and it links back to loan relationships in TTP.

How to prepare Corporation tax: taxable total profits

Work the chapter as a calculation routine you can run from memory. Practise on past-style questions, writing every working, because the exam rewards visible method.

  1. Learn the TTP layout: trading profit, property income, non-trading loan relationship income, chargeable gains, then deduct qualifying charitable donations and losses. Rehearse it until you can write it cold.
  2. Learn what is excluded: UK dividends received are not in TTP. Know when they still count towards augmented profits and when they do not.
  3. Memorise the marginal relief formula and practise it. For example, TTP of £200,000 with no dividends and no associates: tax at 25% is £50,000. Relief is (£250,000 − £200,000) × 3/200 × £200,000 ÷ £200,000 = £750. Tax payable is £49,250.
  4. Drill the limit adjustments: divide the £50,000 and £250,000 limits by the number of associated companies plus one, and time-apportion for periods under 12 months. Apportion to the nearest month, as the exam instructions say.
  5. Practise the instalment test using the £1,500,000 profit threshold, adjusted for associates and short periods. Then list the due dates for a 12-month period.
  6. Calculate interest on a late balance and an overpayment using the rates in the tax tables. Remember how the interest is itself taxed or deducted.
  7. Finish with mixed past questions. Write a short explanation of the tax cost and payment dates to build your professional skills marks.

Common mistakes in Corporation tax: taxable total profits

  • Including UK dividends received in TTP

    Fix: Leave them out of TTP. Add them only to augmented profits when testing the limits and calculating marginal relief, and only where they are not from group companies.

  • Using the £50,000 and £250,000 limits unadjusted

    Fix: Before choosing a rate, check for associated companies and for a period under 12 months. Adjust both limits first.

  • Putting the wrong profit figure into the marginal relief formula

    Fix: Write the formula out, label TTP and augmented profits separately, and substitute each one in the right place.

  • Missing the instalment test or using the wrong dates

    Fix: Always test the threshold first. If instalments apply, list the dates from the start of the accounting period and show them in your answer.

  • Mixing up the interest rates or ignoring the tax treatment of the interest

    Fix: Read the labels in the table carefully. Remember that interest paid or received on tax is part of the loan relationship rules and affects TTP.

  • Writing only numbers with no explanation

    Fix: Add a sentence stating the result, the due date and what it means for the client. This earns professional skills marks.

Last-day revision: Corporation tax: taxable total profits

  • TTP = total profits (income and chargeable gains) less qualifying charitable donations and loss reliefs.
  • Small profits rate is 19% and main rate is 25%; both come from the tax tables.
  • Lower limit is £50,000 and upper limit is £250,000 for a 12-month period with no associates.
  • Marginal relief = (Upper limit − Augmented profits) × 3/200 × TTP ÷ Augmented profits.
  • Augmented profits = TTP plus dividends received from non-group companies.
  • Dividends from UK companies are exempt and not in TTP.
  • Divide both limits by the number of associated companies plus one, and multiply both by months in the period ÷ 12 for short periods.
  • An accounting period can never exceed 12 months, so a longer period is split.
  • Instalments apply to large companies, measured against the £1,500,000 profit threshold, adjusted for associates and short periods.
  • Interest rates in the tables: 8.50% on underpaid tax and 3.50% on overpaid tax.
  • Round to the nearest £ and apportion to the nearest month, as the supplementary instructions say.
  • Show every working. Method marks rely on it.

Corporation tax: taxable total profits practice questions

Corporation tax: 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.

Corporation tax: taxable total profits: frequently asked questions

What are taxable total profits in ATX-UK?

They are a company's income and chargeable gains for an accounting period, after deducting reliefs such as qualifying charitable donations and losses. Corporation tax is charged on this figure. UK dividends received are not part of it.

When does marginal relief apply?

It applies when augmented profits fall between the lower limit of £50,000 and the upper limit of £250,000, after any adjustment for associated companies and short periods. Below the lower limit the small profits rate of 19% applies. Above the upper limit the main rate of 25% applies.

What are augmented profits?

Augmented profits are TTP plus dividends received from companies that are not group companies. You use them to decide which rate applies and in the marginal relief formula. Dividends from group companies are not added.

Do I need to memorise the corporation tax rates?

The rates, limits, the standard fraction and the interest rates are in the tax tables ACCA gives you in the exam. You must still know how and when to use them. Practise with the tables so you can find each figure quickly.

How is interest on late corporation tax treated?

Interest on underpaid tax runs at 8.50% and interest on overpaid tax at 3.50% in the ACCA tables. It is dealt with under the loan relationship rules, so interest paid reduces taxable profit and interest received is taxable income.