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Corporation tax liabilitiesCorporation TaxAdministrationInstalments
This question is part of a case study — click to read the full scenario(Case 21)

Section B - Case 2: Aero-Dynamics Ltd

'Aero-Dynamics Ltd' is a UK resident company manufacturing commercial drones. It owns 100% of 'Hover-Tech Ltd' (UK resident) and 80% of 'Sky-Net Inc' (resident overseas). All companies prepare accounts to 31 March. For the year ended 31 March 2024, Aero-Dynamics Ltd has a trading loss of £400,000. Hover-Tech Ltd has taxable total profits (TTP) of £150,000. Sky-Net Inc has equivalent profits of £200,000.

Which companies form a Group Relief group for trading losses with Aero-Dynamics Ltd?

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ACCA · Question 24 · Corporation tax liabilities

Section B - Case 2: Aero-Dynamics Ltd

'Aero-Dynamics Ltd' is a UK resident company manufacturing commercial drones. It owns 100% of 'Hover-Tech Ltd' (UK resident) and 80% of 'Sky-Net Inc' (resident overseas). All companies prepare accounts to 31 March. For the year ended 31 March 2024, Aero-Dynamics Ltd has a trading loss of £400,000. Hover-Tech Ltd has taxable total profits (TTP) of £150,000. Sky-Net Inc has equivalent profits of £200,000.

For the purpose of determining if Hover-Tech Ltd is a 'large' company and must pay its corporation tax in quarterly instalments, what is its profit threshold for the year ended 31 March 2024?

Answer options:

A.

£1,500,000

B.

£750,000

C.

£500,000

D.

£375,000

How to approach this question

Take the standard large company threshold (£1.5m) and divide it by the total number of related 51% group companies (including the company itself and overseas companies).

Full Answer

C.£500,000✓ Correct
To determine if a company is 'large' for quarterly instalments, the standard £1,500,000 threshold is divided by the number of related 51% group companies. The group consists of Aero-Dynamics Ltd, Hover-Tech Ltd, and Sky-Net Inc (3 companies). Overseas companies are included in this count. Therefore, the threshold for Hover-Tech Ltd is £1,500,000 / 3 = £500,000.

Common mistakes

Excluding the overseas company or the parent company from the count.
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