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

Alder Ltd is a UK resident trading company with a 12-month accounting period to 31 March 2026. It has two 100% owned UK subsidiaries, Beech Ltd and Cedar Ltd, both of which are trading. There are no other related companies. Alder Ltd's taxable total profits are £120,000, there are no exempt distributions, and the tax tables apply. What are the lower and upper limits used to decide whether the small profits rate or marginal relief applies to Alder Ltd?

The limits are £16,667 and £83,333. Alder Ltd and its two 100% subsidiaries give three associated companies, so the standard lower limit of £50,000 and upper limit of £250,000 are each divided by three for a 12-month period.

  1. A£50,000 and £250,000
  2. B£25,000 and £125,000
  3. C£16,667 and £83,333Correct
  4. D£12,500 and £62,500

Explanation

Alder Ltd and its two subsidiaries make three associated companies. The limits are divided by three: £50,000 / 3 = £16,667 and £250,000 / 3 = £83,333. Dividing by two (£25,000 and £125,000) would wrongly ignore one subsidiary, and dividing by four would count a company that does not exist.

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