BTC - Marginal Relief

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:27AM in AAT student discussion
Im a little confused about marginal relief for companies paying coporation tax and i wondered if anybody would be able to help?!

Although you use the profits to determine the band,why do some companies not get marginal relief when profits are between £300,001 and £1500,000?? Obviously full rate payers will profits over £1500,001 don't get marginal relief! Do you have to take notice of the size of the company that the text says at the beginning of the company,because some exams papers say that it is a small company, but profits are over £300,000?!

Thanks
gem x

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:BTC - Marginal Relief

    Without consulting my text book I thought it was only part year and associated companies that affected bands.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:BTC - Marginal Relief

    Thanks for your reply :)

    Yes part years and associated companies do apportion the higher and lower amounts of the band, i just dont understand why in some past exam papers that i have done when a company has profits between £300,000 and £1500,000 and pay tax at 30% that some do not receive marginal relief, because the apportion for assocated companies and a part year doesn't affect the profit figure!

    Does anybody have any idea why this is?!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:BTC - Marginal Relief

    One last guess.

    Is it becaause of the dividend?

    The dividend inclusive figure determines the rate, i.e. 30% inc MMR or just 30%. The dividend exclusive figure is used for the tax.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:BTC - Marginal Relief

    Yes the profits figure that includes the dividend is used to determine the tax rate. I don't think that is the reason?!

    Thanks for your help though.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:BTC - Marginal Relief

    Do you have a specific question that you are referring to? That might help us give you the answer because unless there is dividend income as Halifax71 has said, then it won't be a marginal rate company.

    Annette
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:BTC - Marginal Relief

    I'm doing BTC on Tuesday so in the absence of an example it's difficult to see the problem. Hope i'm not missing something. Here's my understanding.

    Rates - small, medium, large. Size is tax band not same as P&M. It could be a small company for CA but middle here.

    £0 - £300,000 = 19%
    £300,001 - £1,500,000 = 30% less MMR
    £1,500,001 = 30%

    So if anything other than £300,001 - £1,500,000 then it simply multiply by 19% or 30%.

    The complications:
    1) Dividend (inc tax credit)- this is included for the purposes of determining which tax rate but not included in the tax calc itself. It is also used in the MMR fraction.

    2)Associated companies - e.g. 1 associated company would reduce bands by a half. Middle rate would be £150,001 to £750,000. Dividends only from non-associated companies included in determining rate.

    3) Short accounting periods - again scale down bands as with associated companies. If there are associated companies and a short CAP then scale down twice.

    4) Losses - you can offset losses against the PCTCT.

    If there's something else I should be aware of please advise. Thought I'd sussed this but now you're panicking me.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:BTC - Marginal Relief

    Everything looks okay but check the loss situation, current year and carry back are set against income before charges, group losses are set against PCTCT and carried forward are set against trade profits only.

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