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

Kestrel Ltd has no associated companies and has a 12-month period to 31 March 2026 (financial year 2025). Its taxable total profits are £180,000, made up of trading profit £170,000 and a chargeable gain £10,000. It also received dividends of £20,000 from an unconnected UK company. Using the marginal relief fraction of 3/200, what is its corporation tax liability?

The liability is £44,325. Tax at 25% on £180,000 is £45,000, less marginal relief of £675, calculated as (£250,000 − £200,000) × 3/200 × 180,000/200,000. Augmented profits of £200,000 include the exempt dividends, but only taxable total profits are taxed.

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

Explanation

Augmented profits = 180,000 + 20,000 = 200,000, which lies between £50,000 and £250,000. Tax at the main rate = 180,000 × 25% = 45,000. Marginal relief = (250,000 – 200,000) × 3/200 × 180,000/200,000 = 750 × 0.9 = 675. Liability = 44,325. £44,250 fails to apportion the relief by taxable total profits over augmented profits; £49,250 wrongly taxes the dividends.

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