Lecture 6: Groups of Companies Flashcards
What is the treatment of losses in a group?
Companies in a group which have made a loss can “surrender” their loss to other members of the group which have made a profit.
The surrendering (loss-making) company can use group relief before, or instead of, other loss relief claims. ^ For current year losses only.
Carried forward losses can only be group relieved if they cannot be deducted from the surrendering company’s own profits. The claimant company must use its own carried forward losses to the fullest extent before it can use group carried forward losses.
What losses may be surrendered in a group?
Losses which may be surrendered are:- - trading losses (for losses incurred after 1 April 2017, both current period losses and losses carried forward from previous periods. The latter are subject to restrictions.) - excess charges on income - unrelieved property business losses
Where a 75% relationship exists, losses are surrendered in full
(i.e. 100% of the loss can be surrendered even if there is only a 75% holding)
When is there a group?
For the purposes of group relief, 2 companies are members of a group where:
- One is the 75% + subsidiary of the other, or
- Both are 75% + subsidiaries of a 3rd company (direct or indirect)
What is a direct holding?
If A controls 75%+ of B.
Or If A controls 75%+ of B and 75%+ of C.
Where a company directly holds a 75%+ ownership of another company.
What is an indirect holding?
E.g. if A owned 75% of B and B owned 75% of C, then A would own 56.25% of C.
There are two separate groups in this situation.
A+B
B+C
If A controlled 90% of B and C, there are three groups:
A+B
B+C
A+C
What happens to losses if there is an overseas company (non EU economic area)?
Where an overseas company is included in the group structure, only profits and losses of a UK permanent establishment (if any) can be used for group relief purposes.
However, an overseas company’s shareholding can be used to link 2 or more UK companies.
What happens to losses if there is an overseas company (EU economic area)?
Losses of a company resident in the EEA may be surrendered to a UK company, but only after all possibilities of relief in their own country have been exhausted.
What is consortium relief?
A company is owned by a consortium if 75% or more of its share capital is held by other companies, none of which has a holding of less than 5% or more than 75%. A 90% subsidiary of a consortium- owned company is also a consortium-owned company.
How are losses surrendered in a consortium?
Losses may be surrendered as follows:-
- by the co. owned by the consortium to each consortium member, but only in proportion to their shareholdings
e.g.
S Ltd is owned by A Ltd 60%
B Ltd 20%
C Ltd 20%
S Ltd makes a trading loss of £25,000 A Ltd claims →£15,000 B Ltd claims →£5,000 C Ltd claims →£5,000
- by the members of the consortium to the consortium-owned company, up to a maximum of their share of the subsidiary’s profits.
e.g.
S Ltd makes a profit of £40,000
A Ltd makes a loss of £60,000
B Ltd makes a loss of £7,200
C Ltd makes a profit of £32,000
A Ltd can surrender loss of
60% x 40,000 = £24,000
B Ltd can surrender loss of
→ 20% x £40,000 = £8,000
i.e. will surrender whole £7,200
Summary S Ltd profit £40,000 Less losses surrendered From A Ltd (24,000) From B Ltd (7,200) Chargeable profits £8,800
The amount of a consortium-owned company’s trading loss which is available for consortium relief is the amount of the loss less any potential claim for loss relief against total profits of the loss-making period, whether or not such a claim is actually made.
Consortium owned company must use its own current year (a) loss relief before any consortium relief.
What is a group for chargeable gains purposes?
Group =
75% or more (direct holdings)
More than 50% (indirect holdings)
Principal company = ultimate holding company
A company which is a 75% subsidiary of another company within a group, cannot itself be a principal company.
What is the treatment of transfer of assets within a group?
Companies which are members of such a group can sell or transfer assets to each other without incurring a chargeable gain.
When the chargeable asset is later disposed of outwith the group, the gain is calculated on the difference between the disposal proceeds and the original cost to the group
What are treatment of capital losses within a group?
Where one group company makes a capital gain, and another a capital loss, the companies can elect that one company is deemed to make the capital gain and the capital loss, thus allowing them to be set off against each other.
What is the treatment of group rollover?
Rollover relief may be claimed on the disposal of a qualifying business asset by one group member against the cost of assets acquired by another group member.
