Groups of companies

Question 1

To who is available group loss relief?

Answer 1

• to members of a 75% group relief group
  Losses of one member of the group can be surrendered to other group companies, to utilise against their own taxable total profits.
  For sub-subsidiaries to be in a group, the parent company must have an effective interest in the sub-subsidiary of at least 75%
  Group can be created through companies resident overseas

Question 2

Two companies are members of a 75% group relief group where:

Answer 2

• one company is the 75% subsidiary of the other, or
• both companies are 75% subsidiaries of a third company

Question 3

A company (the parent company) has a 75% subsidiary if:

Answer 3

• it owns, directly or indirectly, at least 75% of its ordinary share capital
• it has the right to 75% or more of its distributable profits
• it has the right to 75% or more of its net assets on a winding up

Question 4

Where a group of companies form a group relief group:

Answer 4

• losses of one group company may be surrendered to other companies in the group
• the recipient company can then relieve the losses against its own taxable total profits

Question 5

What is the surrendering company?

Answer 5

• is the company that surrenders its loss

Question 6

What is the claimant company?

Answer 6

• is the company to which to loss is surrendered

Question 7

The losses which may be surrendered are:

Answer 7

• trading losses: current period; brought forward trading losses to the extent that they cannot be used against the surrendering company’s own total profits
• unrelieved QCDs
• unrelieved property business losses: current period and brought forward losses
• unrelieved QCDs are treated as surrendered before unrelieved property business losses
• capital losses cannot be surrendered to group companies under these rules

Question 8

QCDs and property losses are only ‘unrelieved’ if:

Answer 8

• they exceed any other income and gains before the deduction of any losses ( current year, brought forward or carried back)

Question 9

The surrendering company

Answer 9

• may surrender any amount of its current period trading losses, unrelieved QCDs and unrelieved property business losses
• brought forward trading and property losses can be surrendered to extent that the surrendering company is unable to use the loss
• there is no requirement for the surrendering company to actually claim to relieve a trading loss against its own profits first

Question 10

The claimant company

Answer 10

• offsets the group relieved losses against taxable total profits of its corresponding accounting period

Question 11

The maximum group loss relief that can be accepted by the claimant company is:

Answer 11

Total profits x
Less: Losses brought forward ( full amount) (x)
Less: Current year losses (x)
Less: QCD relief (x)

Question 12

The claim for group relief:

Answer 12

• is made by the claimant company on its corporation tax return
• within two years of the end of its AP
• but requires a notice of consent from the surrendering company

Question 13

Claimant corresponding accounting period

Answer 13

• is any accounting period falling wholly or partly within the surrendering company’s accounting period
• where the companies do not have coterminous (same) year ends, the available profits and losses must be time apportioned, to find the relevant amounts falling within the corresponding accounting period
• the maximum loss that can be surrendered = lower of:
  # loss in the surrendering (loss-making) company for the corresponding accounting period
  # taxable total profits in the claimant company for the corresponding accounting period

Question 14

If the claimant company pays the surrendering company for the group relief, the payment is ignored for corporation tax purposes:

Answer 14

• it is not tax allowable in the claimant company’s computation
• it is not taxable income in the surrendering company’s computation

Question 15

The following points should be considered, when deciding how to offset a trading loss which arises within a 75% group relief group company:

Answer 15

• whether the loss should be surrendered
• order of surrender

Question 16

A group member with a loss has the choice of:

Answer 16

• making a claim against its own profits, and/or
• surrendering some/all of the loss to another group member

Question 17

Important in relation to choosing whether to surrender

Answer 17

• unlike utilising current year losses against a company’s own profits, group relief is very flexible
• it is possible to specify the amount of loss to be surrendered within a group - which can be any amount up to the maximum amount
• the surrendering company may surrender some of its losses using group relief and utilise the rest against its own profits
• if it has paid QCDs, it should ensure that losses retained will reduce total profits before deduction of QCDs to the amount of any QCDs paid. This will allow the QCDs to be deducted in full without any corporation tax becoming due.

Question 18

Special capital gains advantage are available to members of a capital gains group. They enable:

Answer 18

• assets to be transferred tax efficiently around the group
• the efficient use of capital losses within the group
• the advantages of rollover relief to be maximised

Question 19

Definition of a 75% capital gains group

Answer 19

• comprises the parent company and its 75% subsidiaries and also, the 75% subsidiaries of the first subsidiaries and so on
• the parent company must have an effective interest of over 50%, in ALL companies
• a company which is a 75% subsidiary, cannot itself be a ‘parent company’ and form a separate gains group
• while applying the 75% test, the shares held by overseas companies can be taken into account. Non-UK resident companies, however, cannot take advantage of the special reliefs available to UK resident members
• the 75% requirement only applies to the ownership of the ordinary share capital

Question 20

Implications of being in a 75% capital gains group

Answer 20

• assets are transferred at no gain/no loss
• chargeable gains and allowable capital losses can be transferred around the group
• rollover relief is available on a group basis

Question 21

Calculation of chargeable gain

Answer 21

• proceeds less original cost less indexation allowance to the date of disposal or December 2017 if earlier

Question 22

Calculation of indexation allowance

Answer 22

• calculated by applying the relevant indexation factor to the original cost

Question 23

Transfer of assets within a group

Answer 23

• assets transferred within a gains group are automatically transferred at no gain/no loss
• the transfer is deemed to take place at a price that does not give rise to a gain or a loss
• the tranferor’s deemed proceeds figure is also the deemed cost of acquiring company
• no claim is made - the treatment is automatic and mandatory
• when the acquiring company sells the asset outside of the gains group, a chargeable gain/allowable loss arises on the disposal in the normal way

Question 24

The joint election:

Answer 24

• is available provided both companies are members of the gains group at the time the gain or loss arose
• must be made within 2 years of the end of the accounting period, in which the gain or loss arose
• must specify in which company in the group the gain or loss is to be treated for tax purposes, as arising
  The only current year chargeable gains or allowable losses can be transferred, not brought forward losses

Question 25

Benefits of the joint transfer election

Answer 25

• as no actual transfer of assets is taking place within the gains group, there will be savings in legal and administrative costs
• the two year time limit for making the election, means that tax planning can be undertaken retrospectively
• an election can specify the amount of gain or loss to be transferred (i.e. it does not need to be the whole chargeable gain/allowable loss arising on a disposal). This gives increased flexibility with tax planning.

Question 26

Rollover relief ROR

Answer 26

• companies within a 75% gains group, are treated as if they form a single trade, for the purposes of ROR
• it can be claimed:
  # one company within a gains group, disposes of an eligible asset and makes a chargeable gain,
  # another company within the same gains group, acquires a replacement eligible asset