ACCA Advanced Taxation (ATX) Practice Exam

What defines a marginal company in terms of corporation tax?

1. A company paying corporation tax at a rate of 15%

2. A company paying corporation tax at a rate of 21%

3. A company paying corporation tax at a rate of 26.5%

4. A company paying corporation tax at a flat rate of 19%

The correct answer is: A company paying corporation tax at a rate of 26.5%

A marginal company in the context of corporation tax is defined by its profit level relative to the specific tax thresholds defined by legislation. The correct answer indicates that a company paying corporation tax at a rate of 26.5% falls within the range where marginal relief is applicable. This particular rate suggests that the company's taxable profits are just above the threshold for the small profits rate but below the upper limit for the main rate. Companies with profits that exceed the limits of the lower tax band yet do not reach the threshold where the main tax rate applies often qualify for marginal relief. This system is structured to ensure that companies with profits in this intermediate range are not faced with an excessive taxation rate that could hinder their growth. The other rates provided do not indicate marginal company status as clearly. A flat rate of 19% represents a straightforward application of the main rate with no marginal considerations. Rates such as 15% or 21% would likely pertain to different types of companies or profit levels, specifically those that fall under either the small profits rate or specific transitional arrangements, thereby not classifying them as marginal companies.