ACCA Advanced Taxation (ATX) Practice Exam

What is the formula for calculating corporation tax payable?

1. Taxable profit x relevant tax rate

2. TTP x relevant % minus allowable expenses

3. TTP x relevant % less marginal relief and DTR

4. TTP plus any losses carried forward

The correct answer is: TTP x relevant % less marginal relief and DTR

The formula for calculating corporation tax payable takes into account a company’s taxable profits and applies the relevant tax rate, along with any adjustments for marginal relief and double tax relief (DTR) where applicable. Using the answer that you focused on, taxable profit (TTP) multiplied by the relevant percentage reflects the basic calculation for corporation tax. However, in many jurisdictions, companies may be eligible for marginal relief, which helps to ease the tax burden on companies whose profits are near the threshold for a higher tax rate. Additionally, DTR allows companies to claim relief on foreign tax paid on income, preventing double taxation on the same income. Thus, the formula presented captures the necessary elements for determining the total corporation tax payable by including these considerations, which lead to a more accurate and reflective tax liability. While other options present aspects of taxation, they either exclude necessary elements for calculating the corporation tax payable effectively or misrepresent the components involved. Hence, the correct formulation must incorporate adjustments such as marginal relief and DTR, making the chosen answer the most comprehensive and appropriate choice.