ExpertHard2 marksMultiple Choice
ACCA · Question 20 · Corporation tax liabilities
Section B - Case 1 (NovaStream Ltd)
NovaStream Ltd has two associated companies. For the 12-month accounting period to 31 December 2023, its augmented profits were £600,000.
Is NovaStream Ltd required to pay its Corporation Tax in quarterly instalments as a 'large' company?
Section B - Case 1 (NovaStream Ltd)
NovaStream Ltd has two associated companies. For the 12-month accounting period to 31 December 2023, its augmented profits were £600,000.
Is NovaStream Ltd required to pay its Corporation Tax in quarterly instalments as a 'large' company?
Answer options:
A.
No, because augmented profits are below £1,500,000.
B.
Yes, because its augmented profits exceed the adjusted threshold of £500,000.
C.
No, because startups are exempt from quarterly instalments in their first year.
D.
No, because although it breaches the £500,000 threshold, it is exempt under the 'first year as a large company' rule since profits are below £10 million.
How to approach this question
First, calculate the large company threshold (£1.5m / 3 = £500k). Second, check if the grace period applies: was it large last year? No (it just started). Are profits < £10m? Yes. Therefore, no instalments.
Full Answer
D.No, because although it breaches the £500,000 threshold, it is exempt under the 'first year as a large company' rule since profits are below £10 million.✓ Correct
The standard large company threshold is £1,500,000. Because NovaStream has 2 associated companies, this is divided by 3 (the company + 2 associates) = £500,000. NovaStream's profits of £600,000 exceed this. However, a company is exempt from quarterly instalments in its first year of being 'large' provided its augmented profits do not exceed £10 million (divided by 3 = £3.33m). Since NovaStream just started trading, it was not large last year, and its profits are below £3.33m, so it pays CT 9 months and 1 day after the AP end.
Common mistakes
Forgetting the grace period for the first year a company becomes large.
Practice the full ACCA TX — Taxation Practice Exam 2
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