CTM80105 - Groups: group relief: structural outline
Part 5 CTA10
Group relief is a relief from Corporation Tax.
The basic idea of group relief is to tax the economic unit that gives rise to profits over a corresponding period. Of course, some groups of companies carry on quite diverse businesses but, as with an individual with many sources of income, it makes sense to tax the aggregate results of the activities. In the most straightforward case a company with profits of £1000 wholly owns a subsidiary which has losses of £100. In economic terms there is one profit-making unit (the group) and it has profits of £900. Group relief is designed to ensure that the group pays tax on £900.
Group relief allows:
- the transfer of losses and certain other amounts (CTM80110),
- between companies within the charge to CT,
- which have the necessary group relationship (CTM80150) or consortium relationship (CTM80530).
Whilst group relief allows the transfer of losses between companies, it does not go so far as treating a group of companies as if it were a single company for tax purposes. That is: the detailed rules about the amounts of losses, etc. which can be surrendered and claimed fall short of full consolidation of each group company’s profits and losses into a single figure of profit or loss for the group as a whole. The companies are still treated as separate legal entities for tax, and the framework operates on that basis; hence for example the surrendering company must actively consent to the claimant company utilising its losses, etc.
The rules about which trading losses and other amounts may be surrendered are described at CTM80110 onwards. The company that transfers the losses, etc, is called the ‘surrendering company’. The company that claims the losses, etc, is called the ‘claimant company’.
In broad terms the maximum amount of the claim is the lower of:
- The surrendering company’s ‘surrenderable amounts’ (CTM80110), and
- The claimant company’s ‘available total profits’ (CTM80400).
Both of these figures is subject to adjustments (CTM80210) and restrictions (CTM80165)
It is not necessary that the surrendering company and the claimant company have the same accounting periods. Neither is it necessary for them to have had a group relationship throughout an accounting period. There are special rules for determining the amount of relief in these circumstances (CTM80210).
There are special rules that apply:
- to UK permanent establishments of companies resident outside the UK and overseas permanent establishments of UK resident companies, if there is the possibility of relief being given in a jurisdiction other than the UK (CTM80305),
- if there are arrangements that could affect the group relationship (CTM80165), or
- if the loss arises to a 75% subsidiary resident in an European Economic Area territory (CTM81500 onwards).
Guidance about dual resident companies is at CTM34500 onwards.