Chapter 19 The principles of Group Relief Flashcards
19.1 Introduction
Group relief allows losses to be transferred to profit-making companies in the same 75% group. The maximum claim is the lower of the available loss or the available profit.
For group relief to apply, one company must be a 75% subsidiary of the other, or they must both be 75% subsidiaries of a third company. The provisions only apply to company ownership and not individuals. A company is a 75% subsidiary of another company when all three of the following conditions are met:
• The parent company has at least 75% ownership of the ordinary share capital of the company
• Those shares entitle the holder to at least 75% of the distributable profits that are available to the equity holders
• Those shares entitle the holder to at least 75% of the company’s assets that are available for distribution to the equity holders on a winding up
These three together form the definition of equitable ownership. An equity holder is any person who holds ordinary shares in the company, or is a loan creditor of the company in relation to a loan which is not a normal commercial loan.
19.3 Available amounts
The surrendering company may surrender current year:
• Trading losses
• Non trading LR deficits – can be surrendered before the company has offset any loss in its own computation
• Current year excess qualifying charitable donations
• Current year excess UK property business losses
• Current year excess management expenses
• Current year excess non-trading losses on IFAs – excess refers to the profit-related threshold. The claimant company must use the losses in the current AP
19.4 Group Relief for brought forward losses
Brought forward losses made in APs beginning before April 2017 may not be surrendered for group relief. APs on or after April 2017 it is possible for brought forward losses to be surrendered. Group relief for carried forward losses is subject to a number of restrictions:
• The surrenderable mount is limited to the excess of brought forward losses over the current year profits of the surrendering company.
• A company with brought forward losses of its own must utilize those losses as far as possible before claiming group relief
The brought forward losses are subject to the deductions allowance. Where a company is in a group, a nominated company will decide how the deductions allowance is shared. Where a company joined a group partly through the accounting period, the maximum amount of the deductions allowance allocated is the £5 million allowance multiplied by the proportion of the accounting period the company was a member of the group.
The company can also claim the relevant proportion of the non-group deductions allowance for the period for which it is not a member of the group.
19.5 Effective Use of losses
From a timing perspective, the preference would be for claims in the following order:
• Current year and then carry back
• Group relief
• Carry forward
