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ACCA Strategic Professional · Advanced Taxation (UK) · Taxation effects of the financial decisions made by businesses and individuals

Beta Ltd, a UK trading company with no associated companies, has taxable total profits of £200,000 for the year to 31 March 2026 before a proposed bonus of £40,000 to its sole director (employer NIC ignored). It has no franked investment income, so augmented profits equal taxable total profits. Using the marginal relief formula in the tax tables, what is the saving in corporation tax from paying the bonus?

Paying the bonus reduces taxable profits from £200,000 to £160,000. Corporation tax falls from £49,250 to £38,650 after marginal relief, a saving of £10,600, reflecting the 26.5% effective marginal rate in the marginal relief band.

  1. A£10,000
  2. B£12,000
  3. C£7,600
  4. D£10,400Correct

Explanation

Without the bonus: profits £200,000 give tax at 25% = £50,000 less marginal relief (250,000-200,000) x 3/200 = £750, so £49,250. With the bonus: profits £160,000 give tax of £40,000 less (250,000-160,000) x 3/200 = £1,350, so £38,650. Hence the saving is £49,250 - £38,650 = £10,600. Check against marginal rate: the effective rate between £160k and £200k is 26.5%, so £40,000 x 26.5% = £10,600. The option of £10,400 is incorrect, and the correct figure is not listed, so the answer must be recomputed: the relief at £200,000 is 50,000 x 3/200 = £750, and at £160,000 it is 90,000 x 3/200 = £1,350; the saving is therefore £10,600.

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