04. BPT - Groups and consortia Flashcards
Who is group loss relief available to?
Members of 75% group
Define a 75% group
2 companies are members where
- One comp is 75% subsidiary of the other
- Both companies are 75% subsidiaries of a third company
When is one company a 75% subsidiary of another?
If
- At least 75% of its ordinary share capital is owned directly or indirectly by the other company
- It has the right to 75% or more of distributable profits
- It has the right to 75% or more of net assets on the winding up
What must be done for group loss relief?
For group loss relief, you need a strict 75% group: direct and indirect holding must be over 75%
In order to get group relief, do all companies have to be UK resident?
No, group relief rules allow groups to be created through companies resident anywhere in the world
BUT the companies claiming/surrendering group relief must be resident in UK
So if non-UK resident has profits in the charge to UK CT (e.g. trading through UK PE or dealing in UK land) a group relief could b possible on the prof/loss that are subject to UK tax
If non-UK resident comp is based outside EEA, the loss of the UK PE can only be offset against UK group companies if all options have been exhausted overseas
Who is the surrendering company?
The company that surrenders its loss
Who is the claimant compan?
The company to which the loss is surrendered
Which of the following losses can be surrendered?
- Current period losses
- Brought forward losses
- Losses carried back
Current losses can be surrendered
Some brought forward losses can be surrendered
Losses carried back CAN’T be surrendered
What is the maximum group relief available?
The lower of
- Available loss of surrendering company
- Available profits of claimant company
When surrendering a loss, does the full loss have to be used up/ full profit be removed?
No, they can choose any amount up to the maximum available
Which is the lower of
- Available loss of surrendering company
- Available profits of claimant company
Does the surrendering company have to relieve the trading loss against its own profit first?
No, there is no requirement (i.e. doesn’t have to claim s37 first)
i.e. doesn’t have to reduce its own profit first, can have its own profit and still pass on a loss to another
What losses is group relief available on?
- CY trading income loss
- CY non-trading loan relationship deficits
- CY excess qualifying charity donations
- CY excess property loss
- CY excess management expenses
i.e. excess means to the extent that they can’t be utilised in the current year by surrendering company
What is loss relief offset against by the claimant company?
Offsets the loss against TTP of its corresponding accounting period
What is the maximum loss that can be claimed by the claimant specifically?
- TTP X Less CY trading losses (whether or not claim is made) (X) Less Bfwd trading losses relieved (X) Less CY NTLR deficits relieved (X) Less bfwd NTLR deficits relieved (X) Less CY property losses (X) Less bfwd property losses relieved (X)
= Max loss relief in claimant company X
What carried forward losses ca be relieved in a group?
- Certain losses carried forward are eligible for group relief. This is only avail on losses on/after 1 April 17
Following can be surrendered
- Trading losses
- NTLR deficits
- Losses on non-trading IFAs
- Property losses
- Management expenses
What are the additional requirements for if a surrendering company wants to surrender carried forward losses?
If it is unable to use the loss itself when calculating TTP
What are the additional requirements for if a claimant company wants to claim carried forward losses?
If it doesn’t have any unused carried forward losses itself
Profits available to offset bfwd losses are the same as those against which current year group relief is claimed
What is the restriction on carried forward losses within a loss relief group?
The carried forward deductions allowance of £5m applies to the loss relief group as a whole
- Loss relief group can claim one single allowance for both income losses (for which group relief claim can be made) and capital losses (no group transfer of bfwd capital losses can be made)
£5m allowance can be split amongst the group however they see fit
Does the £5m carried forward deductions allowance have to be split equally among a group?
No, it can be split however the group sees best
But if the comp is a member of one group and parent of another, it can only be allocated a share of the deceptions allowance from the group which it is a member
What is a corresponding accounting period?
- Any acc period falling wholly or partly within a surrendering company’s acc period
What does coterminous mean?
The same
i.e. if companies don’t have coterminous year ends, they don’t have the same ye
What must be done if companies within a relief group don’t have the same year end?
Losses surrendered by group relief must be set against the company’s profits for the ‘corresponding acc period’
Corresponding acc period = Any acc period falling wholly or partly within a surrendering company’s acc period
Where companies don’t have coterminous (same) ye, the profits and losses of the companies must be time apportioned
If A owns 100% of B, but then sells B to C, when does group relief stop with A and B and start with B and C?
- A and B can swap losses losses until ‘arrangements to sell’ come into place (usually start of negotiations)
- B and C can swap losses from date of purchase
What are the restrictions on group relief if A owns 100% of B, but then sells B to C?
- When there is a change in ownership on/after 1 April 17, any cfwd losses can’t be surrendered for group relief within 5 years of change of ownership
- Restriction is applicable to the comp whose ownership has changed
- There is no restriction on other companies in the group surrendering losses to the company that has joined
What issues should be considered when determining the best use of losses in a group?
- summary:
» Reduce need for instalment payment
» prof > £5m, consider relevant max for each
» use pre 1 April 17 losses first (less flex)
» diff year ends- earlier period helps cash flow
» if overseas comp don’t waste DTR
» can choose to disclaim, cap allowances - Loss relief in one company may remove need for payments of CT by instalments. Consider especially for very large companies as these pay earliest
- Where prof and losses are greater than £5m, relevant max must be considered for each comp in group
- Where comp has pre and post 1 April 17 losses, pre 1 April 17 losses should be used first as they are less flexible
- If comp in group has non-coterminous year ends, relief to comp is earlier period may aid cash flow
- If group has overseas income, don’t waste DTR and sufficient losses should be left in group to make sure its available
- Comp can choose to disclaim cap allowances. Preferable where not all loss can be used in AP and would otherwise be cfwd. Relevant for comps w large losses which would be subject to restriction of relief when cfwd
Define a consortium
Exists where 20 or fewer UK or overseas comps (consortium members) each own at least 5% and jointly own at least 75% of a UK company (consortium company)
No member can own > 75% of shares individually otherwise form a losses group
E is owned as follows: A owns 30% B owns 20% C owns 20% D owns 30%
Which are the consortium members?
Which is the consortium company?
What if D was an overseas company?
What if D was an individual?
Consortium members = ABCD
Consortium company = E
Which direction can losses be surrendered in a consortium?
Losses can be surrendered in either direction between consortium member and consortium company
But losses CAN’T be surrendered between consortium members
Current period losses and post 1 April 17 losses carried forward can be relieved
What are the rules required for a consortium company wants to surrender losses to consortium members?
And what amount can be surrendered?
It can do so but first assumed to make a current year claim itself (whether its made or not)
Amount that can be surrendered is the lower of
» Members % of the consortium company’s loss
» Available TTP of member
TYU4 Sofa Ltd is owned by following companies: > Iron Ltd 40% > Processor inc 25% > Board Ltd 25%
All are UK resident except Processor Inc
Results for ye 31 Mar 21 are as follows Sofa Ltd: NTLR income £15k and trading loss of £90k Iron Ltd TTP £80k Processor Inc TTP £29k Board Ltd TTP £16k
What is the maximum consortium relief that can be claimed?
Sofa Ltd is assumed to have made a CY claim whether it actually makes one or not
This leaves £75k (£90k - £15k) available for consortium relief
Iron Ltd will claim 40% = £30k
Board Ltd 25% = £18,750 but restricted to £16k
Processor Inc can establish the validity of the consortium but can’t then claim its share as a non-resident
Define a group/consortium company?
Give an example
Consortium company with 75% subsidiaries (i.e. also member of a losses group)
D owns 100% of C, and C owns 60% of A and 40% of D
TYU5: Sofa Ltd is owned by Iron Ltd 40% Processor Inc 35% Board Ltd 25% All are UK resident except Processor inc Results: Sofa Ltd TTP £80k Iron Ltd TTP £38k Processor Inc TTP £29k Board Ltd Trading loss £(23k) What is the max consortium relief that can be claimed between board Ltd and sofa ltd ?
Sofa Ltd can claim lower of
- 25% x £80k = £20k
- loss actually made by Board of £23k
Therefore max claim is £20k
What must you assume about loss relief for a group/consortium company?
What happens if the consortium company makes a loss?
What if the consortium member makes a loss?
Assume maximum group relief is claimed (whether or not it is) before calculating the loss available for consortium relief
If consortium company makes a loss, the available loss for consortium relief is reduced but the group relief is reduced by the group relief that is available for their losses
If a consortium member makes a loss the, profits available from consortium relief is reduced by any potential group relief claims that can be made against those profits first
Define a link company
A consortium member which is also part of a group
They can be UK resident or overseas companies
How can losses be passed when link companies are involved?
- Losses can be passed through the link company
i. e. either the link company or another group company can use the consortium loss - Group losses can also be passed to consortium companies
What can be done if more than one company in the group pays CT in instalments?
The companies can elect to form a group for CT payment purposes
Eligible companies are parent and 51% subsidiaries and their 51% subsidiaries and so on
What is the impact if a group is formed for CT payment purposes?
- Occurs where more than 1 comp in group pays CT in installments (they must elect to do so though)
- Can base estimates of payments on group forecasts rather than each indiv
- Nominated company pays all instalments for group
- Group payments reduce impact of the difference in rates of interest on overpaid/underpaid tax
TYU7 Sofa Ltd is owned by:
40% Iron Ltd
35% Processor Inc
Board Ltd 25%
All are UK resident except Processor Inc
Iron Ltd has 90% subsidiary: Vacuum Ltd
Results are as follows Sofa Ltd trading loss £100k Iron Ltd TTP £4k Vacuum Ltd TTP £50k Processor Inc TTP £29k Board Ltd TTP £23k
What is the consortium relief that can be claimed by the Iron Ltd group?
Consortium relief
The Iron Ltd group can claim 40% of £100k = £40k
Although Iron Ltd itself has insufficient TTP to absorb this, it is a link company and can pass all or some of the to Vacuum Ltd which odes have sufficient TTP
To be part of a chargeable gains group, what % control must there be for
a. Direct
b. Indirect holdings
direct = 75% indirect = 50%
Can subsidiaries be members of more than one gains group?
NO
Can non-residents be part of gains group?
They can act as links but can’t participate in the gains group
What are the benefits of a gains group?
- NGNL transfers
- Re-allocation of gains and losses
- Group rollover relief
How is NGNL a benefit of a gains group?
pg 134
How is NGNL a benefit of a gains group?
Chargeable assets are transferred between group companies at NGNL
Asset is deemed to be transferred at a original cost + any indication available to date of transfer
But then a gain does arise when
- Asset is sold outside thee group
- Transferee company leaves the group, within 6yrs of transfer, still owning the asset (known as degrouping charge (DGC))
What is a degrouping charge and when does it occur?
Causes a gain to arise when there has previously been a NGNL
Occurs when transferee company leaves the group, within 6yrs of transfer, still owning the asset
How is the re-allocation of gains and losses a benefit of being in a gains group?
-An election can be made to re-allocate all/part of the gain or capital loss made by one group company to another group company
How is group rollover relief a benefit of being in a gains group?
- Companies within a group are treated as if they carry out a single trade for the purpose of rollover relief
- Means, subject to usual conditions, group relief can be claimed between members of a group
How does rollover relief work in a gains group?
A sells a qualifying asset, which should create a gain
B then reinvests in a qualifying asset within the qualifying time period (previous 12 m or next 36 months)
A can rollover the gain against the cost of B’s new asset
What are some of the key planning aspects when considering a gains group?
- Degrouping charges
» If SSE applies to share disposal any degrading charge (DGC) will also be exempt. If a degrouping loss has arisen, the group may wish, if possible, to claim relief for this loss. Could be done if group wishes to sell some shares (not
What are some of the key planning aspects when considering a gains group?
- Degrouping charges
» If SSE applies to share disposal any degrading charge (DGC) will also be exempt. If a degrouping loss has arisen, the group may wish, if possible, to claim relief for this loss. Could be done if group wishes to sell some shares (not all) in a comp by making a new issue of shares rather than selling a portion of its existing SH - Reallocation of gaisna nd losses
» Gains/losses can be reallocated between gains group members. This allows
** G/L to be matched in the same comp
** Gains to be transferred to comps w capital losses bfwd
** gains to be taxed in comp w CY trad losses and post 1 Apr 17 trading, prop & NTLR losses bfwd
» Where comps make election to transfer gains within gains group to access bfwd cap losses in another member, 50% restriction applies to amount of gains transferred
What at the implications of transferring intangible assets in a gains group?
- Intangibles originally acquired pre 1 Apr 02 are classed as chargeable assets, so trans at NGNL. Transferee will continue to treat as chargeable (unless after July 2020 then would be trading asset)
- IFA originally acquired after 1 April 02 are trading assets and treatment is:
» Transfer is tax neutral, i.e. transferee takes over asset at carrying amount
» Transferee comp takes over transferor comp’s original cost and amortisation and impairments already acc for
** Prior to 7 Nov 18, if a comp left group within 6yrs still holding an IFA received from intra-group transfer, a regrouping charge would arise. Calculated as the profit that would have been taxable at date of intra-group transfer
** From 7 Nov 17, no IFA DGC arises when a comp leaves a group due to sale of shares if sale is exempt under SSE rules
Can pre-entry capital losses be utilised by the group it joins?
- Legislation exists to prevent pre-entry capital losses (i.e. bfwd cap losses within comp at time is joins new group) being utilised within a group where comp with cap losses didn’t always belong to that group
- Pre-entry losses can’t be utilised within new group
- Pre-entry cap loss can only be used against gains made by that company itself on assets which it held when it joined the group or subsequently acquired at arms length (i.e. not from members of new group)
What are pre-entry capital losses?
bfwd cap losses within comp at time is joins new group
What is the tax treatment when transfer of assets results in the transfer of a capital asset to trading inventory?
i.e. if A transfers NCA to B but B will use it as inventory?
A Ltd: NGNL transfer
B Ltd:
- Deemed to have received a NCA at indexed cost and immediately appropriated it into trading inventory at market value
- Gives rise to gain in B
Proceeds (MV @ NGNL transfer) X
Indexed cost (X)
= Gain X - If B subsequently sells the inventory, will generate trading income
Sales price X
Less Cost (MV @ NGNL transfer) (X)
= Trading income/loss X/(X) - B can make an election to turn the gain into trading income
What is the tax treatment when transfer of assets results in the transfer of a inventory to capital asset?
i.e. if A transfers inventory to B but B will use it as NCA?
A Ltd: - Before transfer, A turns inventory into NCA, generating trading income for A proceeds X Cost (cost to A) (X) = Trading income/loss X/ (X)
B Ltd: receives NCA @ NGNL (base cost = MV at date of transfer)
Describe how a NGNL transfer works
- Chargeable assets are transferred between group companies at NGNL
- Any proceeds received are ignored and deemed proceeds = cost + indexation up to 31 Dec 17
- Gain only becomes chargeable when either
- Recipient comp sells the asset outside the group
- Recipient company leaves group within 6 years still owning the asset it received via NGNL
When does a NGNL gain become chargeable?
- Gain only becomes chargeable when either
- Recipient comp sells the asset outside the group
- Recipient company leaves group within 6 years still owning the asset it received via NGNL
What is the process of taxing assets received via NGNL sold outside the group?
What is the
- Selling comp calculates the gain as if they had always owned the asset
- Gain is calc as
Proceeds X Less cost (Original cost at acquisition + indexation to date of transfer or Dec 17) (X) Indexation allowance (from date of NGNL transfer to date of disposal/ Dec 17)* (X)
= Gain/loss X
- Note: no further IA will be deducted if NGNL transfer was post Dec 17
When do degrouping charges arise?
- Company leaves a gains group
- Still owning an asset received via NGNL from another company in that gains group
within 6 yrs of NGNL transfer
How do you calculate a degrouping charge?
Proceeds (MV @ date NGNL transfer) X
Cost to A (X)
IA (from date of purch by A to NGNL transfer or Dec 17 if earlier) (X)
= DGC X
How is a degrouping charge taxed assuming that is has arisen due to the disposal of shares of the departing company (i.e. qualifying share disposal)
- A degrouping gain is added to sale proceeds received on the dispel of shares
- Degrouping loss is added to the allowable cost of the disposal of shares
But if the disposal of shares qualifies for SSE, then DGC will be exempt too. A degrouping loss would be exempt too
If SSE doesn’t apply, how can DGC be reduced?
It can be reallocated in the group in the same way as any other gain or capital loss but can’t be subject to rollover relief claim
What are the key exemptions from a DGC?
- Demergers/ mergers
- Group company ceases to exist
- Transferor and transferee company leave the group at the same time
