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ACCA Strategic Professional · Advanced Taxation (UK) · Corporation tax: taxable total profits

Beta Ltd has taxable total profits of £180,000 (all trading profit) for the year to 31 March 2026, with no associated companies. It also receives exempt dividends of £30,000 from an unconnected UK company. How do the dividends affect Beta Ltd's corporation tax liability?

The dividends are not taxed but they are included in augmented profits. Augmented profits of £210,000 fall between the lower and upper limits, so marginal relief is calculated using that figure. Ignoring the dividends would overstate the relief, because augmented profits would wrongly be taken as only £180,000.

  1. AThey are taxable and increase the liability by £7,500 at 25%
  2. BThey are not taxable but count in augmented profits, so marginal relief is computed using augmented profits of £210,000Correct
  3. CThey have no effect at all because exempt dividends are ignored for every corporation tax purpose
  4. DThey are taxed at 19% because augmented profits are below £250,000

Explanation

Exempt dividends from non-group companies are not in taxable total profits but are included in augmented profits, which determine the rate limits. Augmented profits are £180,000 + £30,000 = £210,000, which lies between £50,000 and £250,000, so marginal relief applies: (250,000 − 210,000) × 3/200 × 180,000/210,000 = £514.29 × ... that is 600 × 0.8571 = £514. Ignoring the dividends entirely would wrongly give a larger relief.

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