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ACCA Applied Skills · Taxation (UK) · The use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Hale Ltd has no associated companies and a 12-month period to 31 March 2026. Its taxable total profits are £120,000 after deducting a qualifying charitable donation of £10,000 paid in the period. It receives no dividends. Which statement about the donation is correct?

The donation is deducted from total profits as a qualifying charitable donation, and because there are no dividends received, augmented profits equal taxable total profits of £120,000. It is not added back when working out the marginal relief limits.

  1. AThe donation is deducted from total profits as a qualifying charitable donation, and the augmented profits for marginal relief equal £120,000Correct
  2. BThe donation is deducted from trading profits and does not affect the profits used for the marginal relief limits
  3. CThe donation is not deductible for corporation tax
  4. DThe donation is added to taxable total profits when computing augmented profits, so augmented profits are £130,000

Explanation

A qualifying charitable donation is a deduction from total profits to reach taxable total profits. Augmented profits are taxable total profits plus exempt distributions received, which are nil here, so they equal £120,000. Adding the donation back to augmented profits is wrong.

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