CTM82540 - Corporation Tax: Group relief for carried-forward losses: Consortia: Potential Part 5 group relief

CTA10/S188EF

The amount of relief claimed under CTA10/S188CC for carried-forward losses relating to consortium conditions 3 or 4 must not exceed the company’s potential Part 5 group relief amount, which is arrived at by the following steps:

Step 1

Take the maximum amount of group relief that the claimant could have been given under Part 5 for losses (CTA10/S99(1)) of the surrendering company in the loss-making period, regardless of whether it had any profits in that period to set the losses against. This is calculated by reference to the ownership proportion for the overlapping period of the loss-making period (CTA10/S143, S145).

Step 2

Deduct any amount of Part 5 group relief actually given to the company for losses that the surrendering company had in that period.

Step 3

The result of Step 2 is then apportioned for losses which are of a type eligible for surrender on carry-forward, by multiplying it by A / B, where:

A is the sum of trading and non-trading losses, UK property losses, excess management expenses, and non-trade losses on intangible fixed assets that the surrendering company had for the loss-making period (CTA10/S99(1)(a), (c), (e), (f) and (g)), and

B is the sum of A plus excess capital allowances and qualifying charitable donations of the surrendering company for the loss-making period (CTA10/S99(1)(a)-(g)).

Step 4

Deduct from Step 3 any group relief for carried-forward losses relating to consortium condition 3 or 4 already given to the claimant for the same loss-making period of the surrendering company.

Example

Company Y is a member of a consortium, and owns 50% of consortium Company Z. Consortium condition 3 has been met throughout the period from the loss-making period to the surrender period, and both companies have the same accounting periods.

Throughout the loss-making period, Company Y only owned 25% of Company Z.

For the specified loss-making period, Company Z incurred £200,000 losses which it could have surrendered to Company Y as group relief under Part 5, of which £100,000 was trading and non-trading losses, and £100,000 was capital allowances and qualifying charitable donations.

The maximum amount of group relief that Company Z could have surrendered to Company Y for the loss-making period is:

25% x £200,000 = £50,000

Company Y actually made a group relief claim under Part 5 from Company Z for £10,000 in the loss-making period, which is removed from the potential Part 5 amount.

The remaining £40,000 is apportioned for losses carried forward of a type that are subject to the relaxation:

£100,000 (trading and non-trading losses) / £200,000 (total losses)

x £40,000 = £20,000

In a period prior to the current period, Company Y had already claimed £10,000 group relief for carried-forward losses in respect of the losses Company Z incurred in the loss-making period. This amount is removed from the potential Part 5 amount.

The remaining amount of £10,000 is the potential Part 5 group relief amount.

Company Y’s relevant maximum (CTM05030) for the overlapping period is £50,000, and the unused part of the surrenderable amount is £150,000. As the lowest of these three amounts in the potential Part 5 group relief amount, then the maximum claim permitted by Company Y is £10,000.