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

Delta Ltd, a UK resident company, owns 60% of Epsilon Ltd, also UK resident. Delta Ltd has taxable total profits of £280,000 for the year to 31 March 2026 and has no other associated companies besides Epsilon Ltd. Delta Ltd receives a £50,000 dividend from Epsilon Ltd. What is the correct corporation tax treatment for Delta Ltd's rate limits?

The dividend from the 51% subsidiary is exempt and not included in augmented profits, so augmented profits are £280,000. Because Epsilon Ltd is an associated company, the limits halve to £25,000 and £125,000. Profits exceed the upper limit, so the main rate of 25% applies to all taxable total profits.

  1. AThe dividend is taxable and Delta Ltd pays 25% on £330,000
  2. BThe dividend is exempt and is excluded from augmented profits, because it is from a 51% subsidiary; the limits are halved to £25,000 and £125,000 owing to one associated company, so the main rate applies to £280,000Correct
  3. CThe dividend is exempt and included in augmented profits, and the limits are £50,000 and £250,000
  4. DThe dividend is exempt and excluded from augmented profits, and the limits are £50,000 and £250,000 so marginal relief applies

Explanation

Dividends from 51% subsidiaries are excluded from augmented profits, so augmented profits equal £280,000. With one associated company, the limits are divided by two to £25,000 and £125,000. Augmented profits of £280,000 exceed £125,000, so the main rate of 25% applies to all profits. Option four ignores the associated company.

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