The corporation tax computation

Once you have taxable total profits, turning them into a corporation tax liability takes three decisions: what the augmented profits are, which limits apply, and therefore which rate (or marginal relief) to use. The final step is knowing when the tax must be paid. Every Section C corporation tax question ends here, and objective test questions regularly test marginal relief with dividends, reduced limits and instalment dates. The figures all come from ACCA's tax tables, which the exam gives you; what earns the marks is applying them in the right order.

Augmented profits decide the rate

Corporation tax is always charged on taxable total profits. Augmented profits are used only to decide which rate applies and how much marginal relief is given. Dividends received from a company that is a 51% subsidiary of the recipient, or a fellow 51% subsidiary of the same parent, are group dividends and are left out of augmented profits.

ACCA's tables give these figures for financial years 2023, 2024 and 2025 (identical in each year):

Marginal relief

Marginal relief smooths the step from 19% to 25%. The formula, given in the tables, is:

When there are no dividends, taxable total profits and augmented profits are the same, so the last fraction is 1 and can be left out. Even so, write it in whenever dividends are received: it is the step most often forgotten.

Marginal relief creates a high marginal rate. With no dividends, each extra pound of profit between the limits costs 25% plus 1.5% (3/200) of lost relief: 26.5%. The overall rate on the company's profits still never exceeds 25%, but the 26.5% matters when you decide where to use losses and group relief (lessons 5 and 6).

Short accounting periods and associated companies

The lower and upper limits are reduced in two situations, and both can apply together.

• Short accounting period: multiply each limit by months ÷ 12.
• Associated companies: divide each limit by one plus the number of associated companies.

A company is associated with another if one controls the other or both are under common control. In TX-UK questions this usually means a group in which a parent company holds more than 50% of each subsidiary, directly or indirectly (a 51% group). Count overseas companies; ignore dormant companies; and count a company that was associated for only part of the accounting period as associated for the whole of it.

A nine-month accounting period with one associated company therefore has a lower limit of £50,000 × 9/12 ÷ 2 = £18,750 and an upper limit of £250,000 × 9/12 ÷ 2 = £93,750.

Financial years

Rates are set for financial years, which run from 1 April. Because the tables give the same rates and limits for financial years 2023, 2024 and 2025, an accounting period that straddles 31 March (for example, the year ended 31 December 2025) is taxed with the same figures throughout. You do not need to apportion profits between financial years in these exams.

Filing and paying

• Return: the corporation tax return is filed online, with the accounts and computations tagged in iXBRL, within 12 months of the end of the period of account.
• Payment, if the company is not large: 9 months and 1 day after the end of the accounting period. For a year ended 31 March 2026, that is 1 January 2027.
• Payment, if the company is large: quarterly instalments.

A company is large if its augmented profits exceed the profit threshold of £1,500,000 in the tables. The threshold is divided by one plus the number of related 51% group companies (the same 51% group idea as above) and reduced in proportion for a short accounting period. A company does not pay instalments for the first accounting period in which it is large, provided it was not large in the previous 12 months and its augmented profits do not exceed £10 million (this figure is not in the tables, so learn it). TX-UK excludes the earlier instalments paid by very large companies.

For a short accounting period of n months, each instalment is 3/n of the estimated liability. The first is still due in the 7th month, the others follow every three months, and the last (the balance) is due on the 14th day of the 4th month after the period ends.

Interest runs on tax paid late, including each late instalment, at the 8.50% rate in the tables, and repayment interest at 3.50% is paid on tax overpaid. For a company, both are non-trading loan relationship items (lesson 2). Penalties for late returns are covered in module A.

Worked example

Example 1: marginal relief with dividends. Harbour Ltd has no associated companies. For the year ended 31 March 2026 its taxable total profits are £168,000 and it received dividends of £12,000 from an unconnected UK company.

Augmented profits fall between £50,000 and £250,000, so marginal relief applies. Without the dividends the relief would have been (250,000 − 168,000) × 3/200 = £1,230; the dividends reduce it. Harbour Ltd is not large, so the tax is due on 1 January 2027.

Example 2: a short period and an associated company. Coral Ltd prepares accounts for the nine months ended 31 December 2025. Its taxable total profits are £72,000, with no dividends, and it has one 51% subsidiary.

Marginal relief is £326.25, rounded to the nearest pound as the exam's supplementary instructions require. The tax is due on 1 October 2026.

Example 3: quarterly instalments. Summit Ltd has one associated company (a 51% subsidiary, held throughout). For the year ended 31 March 2026 its taxable total profits are £2,400,000, with no dividends, and it was also large in the previous year. Its threshold is £1,500,000 ÷ 2 = £750,000, so it is large. Corporation tax is £2,400,000 × 25% = £600,000, payable in four instalments of £150,000:

Notice that the first two instalments fall before the accounting period even ends, so they are based on the company's estimate of its liability.

Common mistakes

• Charging tax on augmented profits instead of taxable total profits.
• Including dividends from 51% group companies in augmented profits.
• Leaving out the taxable total profits ÷ augmented profits fraction when dividends are received.
• Forgetting to reduce the limits (or the £1,500,000 threshold) for a short period or for associated companies.
• Counting instalment months from the end of the accounting period instead of the start, or paying 9 months after the period end without the extra day.

Exam technique

Lay the computation out as in the examples: taxable total profits, dividends, augmented profits, then the limits you are using (with their working), then the tax. Writing the limits down before you calculate forces you to check the length of the period and the number of associated companies. Type the marginal relief formula with its figures exactly as in the tables, so the marker sees each component. When the requirement asks when tax is due, give the date in full and say whether the company is large and why.

Study with AI

I am studying ACCA Taxation (TX-UK), Finance Act 2025: the corporation tax computation.
Give me five short company scenarios, one at a time, mixing: dividends from non-group and
group companies, a short accounting period, associated companies, and a large company
paying quarterly instalments. Ask me for augmented profits, the limits, the corporation tax
and the payment dates. Use only ACCA's tax tables for these exams: 19%, 25%, £50,000,
£250,000, 3/200 and the £1,500,000 instalments threshold. Mark my answer and show the working.

AI assistants can misapply marginal relief or use rates from other years: check every answer against these notes and ACCA's tax tables before you rely on it.

Lecturer's note: Keep two figures apart in your head: augmented profits decide, taxable total profits pay. Dividends received are never taxed, but they push a company towards the main rate and shrink its marginal relief, which is why they appear in the formula twice: once in "upper limit minus augmented profits" and again in the fraction at the end. If you remember that the tax itself is only ever charged on taxable total profits, you will never put the dividends in the wrong place.

Key points

• Augmented profits are taxable total profits plus dividends from non-group companies; they decide the rate, but tax is charged on taxable total profits.
• Small profits rate 19% up to £50,000; main rate 25% from £250,000; in between, 25% less marginal relief using the 3/200 fraction from the tables.
• Reduce the limits for a short accounting period (× months ÷ 12) and for associated companies (÷ one plus their number).
• Tax is due 9 months and 1 day after the period ends, unless the company is large; returns are due 12 months after the end of the period of account.
• Large companies (augmented profits over £1,500,000, adjusted for related 51% group companies and short periods) pay four instalments on the 14th of months 7, 10, 13 and 16.

Quick check

1. A company with no associated companies has taxable total profits of £90,000 and no dividends for the year ended 31 March 2026. What is its corporation tax?
2. A company has taxable total profits of £45,000 and dividends from an unconnected company of £10,000. Which rate band applies?
3. A large company's accounting period is the year ended 30 June 2025. When is its third instalment due?

Answers

1. £90,000 × 25% = £22,500, less marginal relief of (£250,000 − £90,000) × 3/200 = £2,400, gives £20,100.
2. Augmented profits are £55,000, above the £50,000 lower limit, so marginal relief applies to taxable total profits of £45,000; the small profits rate does not.
3. The accounting period starts on 1 July 2024, so the 13th month is July 2025: the third instalment is due on 14 July 2025.