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ACCA Applied Skills · Taxation (UK) · The comprehensive computation of corporation tax liability

Kappa Ltd has two wholly owned subsidiaries: Lambda Ltd, which is trading, and Mu Ltd, which has been dormant throughout the year. Kappa Ltd also owns 30% of Nu Ltd, an unconnected investment. Mu Ltd has never carried on any trade or business. For the year ended 31 March 2026, what is the upper limit for Kappa Ltd for corporation tax purposes?

Counting only active associated companies, Kappa Ltd and Lambda Ltd give two companies, so the upper limit is £250,000 divided by two, being £125,000. The dormant subsidiary and the 30% investment are both ignored, so the limit is not divided by three or four.

  1. A£250,000
  2. B£125,000
  3. C£83,333Correct
  4. D£62,500

Explanation

Dormant companies are ignored when counting associated companies. Kappa Ltd and Lambda Ltd are therefore associated, giving 2 companies and a limit of £125,000. However, the question as written has Mu Ltd as a subsidiary that is dormant, and the 30% holding in Nu Ltd does not create association.

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