CTM05160 - Corporation tax: restriction on relief for carried-forward losses: deductions allowance definition of a group

CTA10/S269ZZB

A group for the purposes of the deductions allowance (CTM05120) means two or more companies where one company is the ultimate parent of each of the other companies and is not the ultimate parent of any other company (CTA10/S269ZZB(2)).

A company (A) is the ultimate parent of another company (B) if A is the parent of B and no company is the parent of both A and B (CTA10/S269ZZB(3)).

A is the parent of B if:

  • B is a 75% subsidiary of A,
  • A is beneficially entitled to at least 75% of any profits available for distribution to equity holders of B, or
  • A would be beneficially entitled to at least 75% of assets of B distributed to equity holders in the event of a winding up.

(CTA10/S269ZZB(4), CTM80151, CTM80155)

For example; company A owns 100% of the shares in company B and B owns 100% shares in company C.

Here A is the ultimate parent and B is a 75% direct subsidiary and C a 75% indirect subsidiary.

The group therefore comprises A, B and C. A and B cannot form a separate group because whilst A is the ultimate parent of B, it is also the ultimate parent of C (CTA10/S269ZZB(2)).

B and C cannot form a separate group because whilst B is the parent of C, it is not the ultimate parent as A is the parent of both B and C (CTA10/S269ZZB(3)).

It follows that there will be a single group deductions allowance to be shared amongst A, B and C.

Profits and assets available for distribution

CTA10/PART5/CH6 applies for the purposes of defining equity holders and profits or assets available for distribution. This means that the rules used in this regard to find a group relief group also apply for the deductions allowance group (CTA10/S269ZZB(5)) (CTM81000).

Share capital and other interests taken into account

CTA10/S1154 applies for the purposes of determining who the subsidiary companies are. In applying CTA10/S1154 to find the deductions allowance group:

  • share capital of a registered society is to be treated as if it were ordinary share capital, and
  • shares owned directly in another company are ignored if a profit on their sale would be a trading receipt.

(CTA10/S269ZZB(6))

In addition, the application of CTA10/PART5/CH6 and CTA10/S1154 should be modified to ensure that:

  • they apply to a company which does not have share capital and to holders of corresponding ordinary holdings in such a company in a way which corresponds to the way they apply to companies with ordinary share capital and holders of ordinary shares in such companies,
  • they apply to a company which is an unincorporated association in a way which corresponds to the way they apply to companies which are bodies corporate, and
  • they apply in relation to ownership through an entity (other than a company), or any trust or other arrangement, in a way which corresponds to the way they apply to ownership through a company.

In order to achieve this, profits or assets are attributed to holders of corresponding ordinary holdings in unincorporated associations, entities, trusts or other arrangements in a manner which corresponds to the way profits or assets are attributed to holders of ordinary shares in a company which is a body corporate (CTA10/S269ZZB(7)).

Corresponding ordinary holding in an unincorporated association, entity, trust or other arrangement means a holding or interest which provides the holder with economic rights corresponding to those provided by a holding of ordinary shares in a body corporate (CTA10/S269ZZB(8)).