A UK company with no associated companies has taxable total profits of £180,000 (all trading profits, no dividends) for the 12 months to 31 March 2027. The main rate is 25%, the small profits rate is 19%, the limits are £50,000 and £250,000, and the marginal relief fraction is 3/200. What is the corporation tax?
Answer and explanation
Correct answer: C. £43,950
- Step 1: Profits fall between the lower and upper limits, so marginal relief applies.
- Step 2: Tax at the main rate: £180,000 × 25% = £45,000.
- Step 3: Marginal relief = 3/200 × (£250,000 - £180,000) = £1,050. Tax = £45,000 - £1,050 = £43,950.
Answer
£43,950.
Why not the others: £45,000 applies the main rate and ignores marginal relief. £34,200 applies the small profits rate to all profits, which is only for profits below £50,000. £43,050 calculates the relief using the profits above the lower limit instead of the amount below the upper limit.
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