ACCA Advanced Taxation (ATX) Practice Exam

For corporation tax purposes, how is a 'large company' defined?

1. One with profits exceeding £1 million

2. One with augmented profits exceeding £1.5 million

3. One based solely on shareholder numbers

4. One with total sales of £2 million or more

The correct answer is: One with augmented profits exceeding £1.5 million

A 'large company' for corporation tax purposes is defined by its augmented profits exceeding a specific threshold, which is £1.5 million. Augmented profits include the company's profits alongside certain other adjustments, providing a broader view of financial capacity that accounts for the scale and complexity of larger enterprises. This definition is significant as it determines the rate of corporation tax that applies to the company. Companies classified as large may be subject to different tax rules and rates compared to smaller companies, which often have various fiscal benefits or reduced rates aimed at supporting smaller businesses. The distinction is intended to ensure that larger firms, which typically have more resources, contribute a proportionate amount towards tax revenues. Other definitions based solely on profit thresholds or sales figures may not capture the complete financial picture, and criteria based solely on shareholder numbers do not align with the complex tax structure imposed on larger entities. Thus, identifying large companies through augmented profits provides a clear and comprehensive framework for determining their tax obligations.