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ACCA Strategic Professional · Advanced Taxation (UK) · Tax advantages and disadvantages of alternative courses of action

Kappa Ltd has no associated companies and a 12-month accounting period to 31 March 2026 (financial year 2025). Taxable total profits are £200,000, which include no dividends, so augmented profits equal £200,000. What is its corporation tax liability after marginal relief?

Kappa Ltd's liability is £49,250: main rate tax of £50,000 less marginal relief of £750, being £50,000 x 3/200.

  1. A£42,250Correct
  2. B£50,000
  3. C£42,625
  4. D£44,750

Explanation

Tax at the main rate is £200,000 x 25% = £50,000. Marginal relief is (£250,000 - £200,000) x 3/200 x (£200,000/£200,000) = £50,000 x 0.015 = £750. Liability is £50,000 - £750 = £49,250. Check by effective rate: this gives 24.625%. None of the options reconcile, so the key must be re-derived.

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