CTM06835 - Corporation Tax: loss buying: restriction of group relief for carried-forward losses: surrendering company previously owned by a consortium

CTA10/S676CD

Consortium conditions 3 and 4

When, immediately before a change in ownership of a company,

  • the transferred company, C, was owned by a consortium, and
  • as a result, company C and another company, X, met either consortium condition 3 or consortium condition 4 (CTA10/S188CF-CG)

then s676CD controls the amount of relief company X can claim from company C as group relief for carried-forward losses (CTA10/PART5A).

In practice, this will only apply in circumstances where the change in ownership does not effectively sever the relationship between companies C and X for the purposes of Part 5A.

Availability of relief

The general rule is that company C cannot surrender restricted losses incurred before the change in ownership to company X (CTA10/S676CB).

However, s676CD modifies this to allow company C to surrender losses incurred in certain specified accounting periods.

If companies C and X met consortium condition 3 or consortium condition 4 throughout a period which;

  • begins before or during the loss-making accounting period, period L, and
  • ends with or after the time when the change in ownership occurred,

then company C is able to surrender amounts attributable to period L to company X for group relief for carried-forward losses.

The relief must be claimed under CTA10/S188CC and the amount will be subject to specific limitations under CTA10/PART5A/CH5.

If period L begins before and ends after consortium condition 3 or 4 was met, relief is still available, but will be proportionately restricted (CTA10/S188EH).

The companies must meet one of conditions 3 or 4, without interruption, for the whole of a space of time that begins during, if not before period L, and ends with of after the change in ownership.

Claiming provisions

If company X claims relief for losses of period L, the claim must be made under s188CC.

This is unlike most claims for group relief for carried-forward losses, which are made under CTA10/S188CB and do not need to refer to a particular loss-making period.

S188CC allows claims in relation to surrenderable amounts attributable to a specified accounting period, in circumstances where group relief for carried-forward losses is not available more generally under s188CB.

For these purposes, companies C and X do not need to meet Requirement 3 of S188CC. This means that the companies do not need to meet consortium condition 3 or consortium condition 4 at any point in the overlapping period (CTA10/S188DG) for which relief is given, so long as they meet the group relief group condition (CTA10/S188CE, S188FB, CTA10/PART5/CH5), instead.

Claims for relief under s188CC are subject to specific limitations under Part 5A, Chapter 5.

Consortium conditions

Broadly, the companies will meet;

  • Consortium condition 3 if company C, the surrendering company, is owned by a consortium and company X, the claimant, is a member of the consortium (CTA10/S188CH), and
  • Consortium condition 4 if company C, the surrendering company, is owned by a consortium and company X, the claimant, ­is in the same group as a member of the consortium (CTA10/S188CI).

Apportionment

Companies may need to apportion amounts in order to determine the amounts of losses restricted and profits affected. They should do so following the method set out in legislation for each of the following two periods:

  • the accounting period in which the change in ownership occurs (CTM06725), and
  • the accounting period that includes the fifth anniversary of the accounting period of the transferred company in which the change in ownership occurred (CTM06730).

Note that where s676CD applies, the appropriate method is the method set out for CTA10/PART14/CH2C generally.