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ACCA Strategic Professional · Advanced Taxation (UK) · Corporation tax: the use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Delta Ltd has no associated companies. For the year ended 31 March 2026 it has trading profits of £400,000 before using brought forward trading losses of £500,000 from an earlier period, and a chargeable gain of £60,000. The company's profits are not subject to the £5 million deductions allowance beyond what is stated and the allowance is available in full. Delta's deduction allowance is £5,000,000. What is the corporation tax liability for the year, assuming losses are relieved as early and as fully as possible?

Brought forward trading losses are set against total profits, including chargeable gains. Profits of £460,000 are fully covered by the £500,000 loss, within the deductions allowance, so corporation tax is nil and £40,000 of loss is carried forward.

  1. A£0, with £40,000 of the loss carried forward to the next periodCorrect
  2. B£15,000
  3. C£16,000, with all losses used
  4. D£27,500

Explanation

Brought forward trading losses are set against total profits of £460,000 (trading £400,000 plus gain £60,000), which is less than the £500,000 loss and within the £5m allowance. Taxable total profits are nil, so the liability is nil, and £500,000 − £460,000 = £40,000 is carried forward. The other options wrongly restrict the loss to trading profits only.

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