ExpertMinds LogoExpertMinds
Hard20 marksExtended Response
Corporation tax liabilitiesSection CSyllabus ECorporation Tax ComputationCapital Allowances

ACCA · Question 32 · Corporation tax liabilities

SCENARIO: EcoGrid PLC is a public utility company specializing in green energy. For the year ended 31 March 2024, its draft net profit before tax is £2,500,000. This includes: £40,000 client entertainment, £15,000 political donations, £120,000 dividend received from a UK subsidiary, and £50,000 interest received on a non-trade bank deposit. EcoGrid PLC purchased a new zero-emission goods vehicle for £60,000 and constructed a new commercial factory building for £1,000,000 (completed and brought into use on 1 October 2023). The main pool tax written down value brought forward was £200,000.

REQUIREMENT: Calculate EcoGrid PLC's Corporation Tax Liability for the year ended 31 March 2024. Show all adjustments to trading profit, capital allowances (including Structures and Buildings Allowance), and the final tax calculation.

How to approach this question

Step 1: Adjust the accounting profit (add back entertainment and political donations, deduct exempt dividends and non-trade interest). Step 2: Calculate Capital Allowances (18% on main pool, 100% FYA on zero-emission vehicle, 3% pro-rated SBA on the building). Step 3: Deduct CAs to find Trading Profit. Step 4: Add back the non-trade interest to find Taxable Total Profits. Step 5: Apply the 25% CT rate.

Full Answer

This question tests the core Corporation Tax computation. Key adjustments include removing exempt dividends and reclassifying interest as a non-trade loan relationship. Capital allowances require knowledge of the 100% FYA for zero-emission vehicles and the 3% SBA rate, which must be time-apportioned from the date of first use.

Common mistakes

Forgetting to pro-rate the SBA. Treating the zero-emission vehicle as a main pool asset (18%) instead of 100% FYA. Leaving the interest in trading profits.
31All questions

Practice the full ACCA TX — Taxation Practice Exam 6

32 questions · hints · full answers · grading

Sign up freeTake the exam

More questions from this exam

Q01Quantum AI Ltd, a tech startup, commenced trading on 1 January 2023 and prepared its first set of...MediumQ02Marcus, a freelance graphic designer, had an income tax and Class 4 NIC liability of £6,000 for t...EasyQ03Which TWO of the following employment benefits provided to an agriculture worker are EXEMPT from ...EasyQ04To qualify as a Furnished Holiday Letting (FHL), for how many days in the tax year must the prope...MediumQ05An employer provides an employee with a new zero-emission electric company car. The list price is...Medium
View all 32 questions →