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ACCA Strategic Professional · Advanced Taxation (UK) · Corporation tax: the comprehensive calculation of the corporation tax liability, including overseas aspects

Greenfield Ltd, a UK resident trading company, pays a qualifying charitable donation of £8,000 in its accounting period. How is relief given for this payment when computing corporation tax?

A qualifying charitable donation is deducted from the company's total profits for the accounting period in which it is paid. It is not an expense in computing trading profit, so it is added back in the adjustment of profits and relieved separately against total profits.

  1. AIt is deducted from the company's total profits for the period in which it is paidCorrect
  2. BIt is deducted as an expense in computing the adjusted trading profit
  3. CIt is not deductible, but it is relieved at the donor's marginal rate through a gross-up
  4. DIt is carried forward and deducted only from future chargeable gains

Explanation

A qualifying charitable donation is not a trading expense. It is a charge on income, deducted from total profits (after the gains and income have been aggregated) in the period it is paid. Treating it as a trading deduction is wrong because it would be added back in the adjustment of profits.

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