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

Harrow Ltd has no associated companies and a 12-month accounting period in financial year 2025. Its taxable total profits are £180,000 and it receives dividends of £20,000 from an unconnected UK company. Using the marginal relief formula (upper limit minus augmented profits) x 3/200 x taxable total profits / augmented profits, what is Harrow Ltd's corporation tax liability?

The liability is £44,325. Tax at 25% on £180,000 is £45,000. Augmented profits including the £20,000 dividend are £200,000, so marginal relief is £50,000 x 3/200 x 180/200, which is £675. Deducting that relief gives £44,325.

  1. A£44,325Correct
  2. B£43,950
  3. C£49,250
  4. D£45,000

Explanation

Augmented profits are £180,000 + £20,000 = £200,000, between the limits. Tax at 25% on £180,000 is £45,000. Marginal relief is (250,000 - 200,000) x 3/200 x 180,000/200,000 = £750 x 0.9 = £675. Liability = £45,000 - £675 = £44,325. £43,950 ignores the dividend in augmented profits, and £45,000 omits marginal relief.

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