Chapter 4 Groups and consortia Flashcards
1.1 Loss Groups
Group loss relief is available to members of a 75% group, where one company is a 75% subsidiary of the other or both companies 75% subsidiaries of a third company. A company can be a member of more than one loss relief group.
1.2 Overseas aspects of loss relief groups
The group relief rules allow groups to be created through companies’ resident anywhere in the world. Companies claiming/ surrendering group relief must be resident in the UK. If a UK company trades through an overseas permanent establishment, group relief can be claimed for the PE’s losses within the UK group. If a non-UK resident has profits in the charge to UK corporation tax a group relief claim is possible for the amount of profits or losses subject to UK tax. The loss of the UK PE of an overseas company can only be offset against UK group companies if all options have been exhausted overseas.
1.3 Mechanics of group relief
Companies which form part of the same loss relief group can transfer losses. The surrendering company is the company that surrenders its loss. The claimant company is the company to which the loss is surrendered. Losses carried back cannot be surrendered. Maximum group relief is the lower of the available loss of surrendering company and available profits of claimant company. It is useful for the claimant company to pay for group relief.
There is no requirement for the surrendering company to relieve the trading loss against its own profits first. Group relief is available on CY trading income loss, CY NTLR deficits, CY excess qualifying charity donations, CY excess property loss and CY excess management expenses.
The maximum loss which can be claimed by the company is the TTP less CY trading losses, less b/f trading, NTLR and property losses, less CY NTLR deficits and property losses relieved.
1.3.2 Carried forward losses
Certain losses carried forward can be surrendered, these include trading losses, NTLR deficits, losses on non-trading IFA’s, property losses and management expenses. The surrendering company can only surrender carried forward losses if it is unable to use the loss itself. The claimant company can only claim carried forward losses if it doesn’t have any unused carried forward losses itself. The profits available to offset brought forward losses are the same as those against which current year group relief is claimed.
1.3.3 Carried forward restriction within a loss relief group.
The carried forward deductions allowance of £5 million applies to loss relief group as a whole. There is a separate deduction for income losses and capital losses (no group transfer of brought forward capital losses can be made). If a company is a member of one group and the parent of another, it can only be allocated a share of the deductions allowance from the group of which it is a member.
1.3.4 Corresponding accounting periods
Losses surrendered by group relief must be set against the claimant company’s profits of a corresponding accounting period. A corresponding accounting period is any accounting period falling wholly or partly within the surrendering company’s accounting period. Where companies do not have coterminous year ends, the profits and losses of the companies must be time apportioned.
1.5 Joining and leaving groups
Companies can swap losses until arrangements to sell came into place (usually start of negotiations). The new purchasing company can swap losses from the date of purchase.
There are restrictions on group relief when there is a change in ownership any carried forward losses cannot be surrendered for group relief within five years of the change in ownership. The restriction is applicable to the company whose ownership has changed. There is no restriction on other companies in the group surrendering losses to the company that has joined.
1.6 Tax planning – group relief
When considering loss relief in a group the following issues should be considered:
- If a group has overseas income, not to waste any double tax relief.
- Loss relief in one company may remove the need for payments of CT by instalments.
- If the companies in a group have non-coterminous year ends relief to a company in an earlier period may aid cash flow
- A company can choose to disclaim capital allowances. Useful to utilise losses in the current period instead of carrying them forward.
2.1 Consortium relief
A consortium exists where 20 or fewer UK or overseas companies each own at least 5% and jointly own at least 75% of a UK company. No member can own more than 75% of shares individually otherwise they form a losses group. Losses can be surrendered in either direction between a consortium member and the consortium company. Losses cannot be surrendered between the consortium members. Both current period and brought forward losses can be relieved.
2.2 Losses in consortium company
A consortium company can surrender its losses to the consortium members, but it is first assumed to make a current year claim itself. Amount that can be surrendered is the lower of the members % of the consortium company’s available loss and the available TTP of the member.
2.3 Losses in consortium members
A consortium member can surrender its losses to the consortium company. The consortium company can accept the lower of the member’s loss and the member’s % of the consortium company’s TTP.
3.1 Group payment arrangements
Where 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. GPAs can also include companies who do not pay by instalments. can base estimates of payment on group forecasts rather than for each individual company. The nominated company pay all instalments for the group. Group payments reduce the impact of the difference in rates of interest on overpaid and underpaid tax.
4.1 Chargeable gains group
One company which owns more than 75% of another company, or two companies under the common 75% control of a third company can form a chargeable gains group. The direct holding must be more than 75% but the indirect only needs to be more than 50%. Subsidiaries cannot be a member of more than one gains group and non-residents can act as links but cannot participate in the gains group.
5.1 Tax implications of a gains group
The benefits of a gains group are:
- No gain no loss transfers between group companies with chargeable assets. Deemed to be transferred at a price equal to the original cost plus any indexation available at the date of transfer. A gain arises when the asset is sold outside the group, or the transferee leaves the group within 6 years of the transfer, still owning the asset. Then a degrouping charge arises. No charge arises when the company leaves the group via demerge/merger, the group company ceases to exist, or the transferor and transferee company leave the group at the same time.
- Reallocation of gains and losses. An election can be made to reallocate all, or part of a gain or capital loss made by one group company to another group company.
- Group rollover relief. Companies within a group are treated as if they carry out a single trade for the purposes of rollover relief. This means group relief can be claimed between members of a group.
5.2 Planning aspects of gains groups
Degrouping charges: if the SSE applies to a qualifying share disposal any degrouping charge will also be exempt. If the company leaves the group for any other reason than a qualifying disposal (for example issue of more shares to another company which means that the old capital gains grouping arrangement no longer exists) then a degrouping charge arises which is assessable within the company which is leaving the group.
Reallocation of gains and losses. Gains groups allows:
- Gains and losses to be matched in the same company.
- Gains to be transferred to companies with capital losses brought forward.
- Gains to be taxed in companies with current year trading losses and trading, property and NTLR losses carried forward.
Where companies make an election to transfer gains within a gains group to access brought forward capital losses in another member, the 50% restriction will apply to the amount of gains transferred. If a degrouping charge arises and is not exempt under the SSE it can be reallocated to group members in this way.
