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ACCA Applied Skills · Taxation (UK) · The scope of corporation tax

Orion Ltd has taxable total profits of £60,000 for a 12-month period and receives dividends of £30,000 from a 5% shareholding in an unconnected UK company. No associated companies exist. Which statement about its corporation tax is correct?

The dividend is exempt from corporation tax but is included in augmented profits, giving £90,000. Because that is above £50,000 and below £250,000, the main rate applies to taxable total profits and marginal relief reduces the tax. A flat 19% would be incorrect.

  1. AThe dividend is taxable and Orion Ltd pays 25% on £90,000
  2. BThe dividend is exempt and is excluded from the marginal relief calculation altogether
  3. CThe dividend is exempt but is included in augmented profits of £90,000, so marginal relief appliesCorrect
  4. DThe dividend is exempt and Orion Ltd pays 19% on £60,000 because augmented profits are below £250,000

Explanation

Dividends from non-group companies are not taxable but form part of augmented profits. Augmented profits of £90,000 lie between £50,000 and £250,000, so tax at 25% on £60,000 is reduced by marginal relief. The 19% option ignores that marginal relief applies above the lower limit.

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