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

Larch Ltd, a UK resident company with no associated companies, prepares an accounting period of 8 months ending 31 March 2026 (all within financial year 2025). Its taxable total profits are £150,000 and it has no exempt dividend income. Using a standard fraction of 3/200, what is its corporation tax liability?

The liability is £37,250. For an eight-month period the upper limit is reduced to £166,667. Tax at 25% on £150,000 is £37,500, less marginal relief of (£166,667 − £150,000) × 3/200, which is £250. Using the unreduced £250,000 limit would be wrong.

  1. A£37,250Correct
  2. B£36,000
  3. C£37,500
  4. D£28,500

Explanation

For an 8-month period the limits are scaled by 8/12: upper limit £166,667 and lower limit £33,333. Profits of £150,000 fall between them. Main rate tax = 150,000 × 25% = 37,500. Marginal relief = (166,667 – 150,000) × 3/200 = 250. Liability = 37,250. £36,000 uses the unscaled £250,000 limit; £37,500 ignores marginal relief; £28,500 applies the small profits rate to all profits.

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