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ACCA Strategic Professional · Advanced Taxation (UK) · Legitimate tax planning measures

Elm Ltd and Fir Ltd are the only two associated companies. How does the association affect the corporation tax limits for a 12-month period?

Each company's lower and upper limits are divided by the number of associated companies, so for two companies they become £25,000 and £125,000. Association therefore reduces the profit range taxed at the small profits rate and brings in marginal relief earlier.

  1. AThe lower and upper limits of £50,000 and £250,000 are each divided by twoCorrect
  2. BOnly the upper limit is divided by two
  3. CThe limits are unchanged because association only affects the rate
  4. DThe limits are doubled for the group

Explanation

Both the £50,000 lower limit and £250,000 upper limit are divided by the number of associated companies, including the company itself. With two companies the limits become £25,000 and £125,000 each. Dividing only one limit is incorrect.

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