UK Company Tax Planning

UK Corporation Tax Planning & Compliance Made Simple

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Losses for Companies and Groups

Tax matters include:
1. Tax losses treatment
2. Definition of a group
3. group loss relief,
4. consortium relief,
5. transfers of trade within a group

Trading loss treatment:
1. Used in the current year and set against total profits including capital gains (exclude donations)
2. Carried back against prior year profits including capital gains
3. Used against future profits of the same trade (no claim needs to be made as this is an automatic relief).

What is group relief and how does it work?
Group relief rules allow companies that are making corporation tax losses to surrender those losses to profit-making group companies.

The objective of the Group being to minimise overall Corporation tax liability or improve cash flows.

Definition of a Group Company under Group Losses Provisions
– Direct holding >75% subsidiary OR
– Indirect holding > 75% of the principal

There are additional group tests, designed to test true economic ownership of the company, which look at the rights of all equity holders is indeed >75%.
[Note the Capital gains group – Direct holding >75% subsidiary OR Indirect holding > 50% of the principal]
Losses that are surrendered under Group relief
A company can surrender by way of group relief:
– a trading loss.
– a capital allowance excess.
– a non-trading loan relationship deficit.
– qualifying charitable donations.
– a UK property business loss.
– management expenses, and.
– a non-trading intangible fixed asset loss.

The maximum amount of group relief that can be surrendered is the lower of the available loss in the surrendering company or the available profit in the claimant company ie amount surrendered cannot create a loss in the claimant company.
Can an overseas company surrender losses to a UK company
Normally the surrendering company and claimant company must both be UK based – either by being resident in the UK, or by carrying on a trade through a permanent establishment in the UK,or UK companies under one non-resident parent. In limited circumstances non-UK resident companies based in, or carrying on a trade in, a European Economic Area (EEA) territory can surrender group relief to a UK company. See “Cross-border group relief claim” below & the Marks & Spencer Case.

If an irrevocable election to exclude overseas PE of a UK company was made, then loses of that PE cannot be relieved.

Group loss relief Time limits and process for claims
The claimant company claims group relief on its company tax return. Claims can usually be made up to two years after the end of the accounting period.
The surrendering company has to give notice of consent in writing at, or before, the time the claim is made.

Companies in a group tend to have the same accounting periods hence only losses in the same accounting period can be surrendered. Special rules exist where the companies do not have the same accounting periods to allow group relief on a time-apportioned basis.

Anti-avoidance provisions
Group relief is denied if say the losses through an artificial tax deduction scheme. HMRC may deny deductibility o certain losses if they are subject to anti-avoidance provisions.

Consortium relief
Consortium relief is a form a group relief which can provide loss relief within groups of companies where there is a less than 75% interest between subsidiary and parent. 

A consortium company is one which is more than 75% owned by other companies each with at least 5% holdings (referred to as consortium members).  Consortium companies and consortium members can relieve losses arising between each other to reduce their overall UK corporation tax charge, this is commonly referred to as consortium relief. The proportion of the losses of each party is limited to the share of the losses based on shareholding in the jointly controlled entity.

Cross-border group relief claim 
Since the Marks & Spencer case determined that it is discriminatory for group relief not to be available for an EEA loss making company, it has also been possible to claim group relief for overseas group companies resident in another EEA territory. However, relief is only available where there is no realistic possibility of the loss making company ever using or obtaining relief for its losses elsewhere (either in the current period or in the future). This must be determined at the end of the relevant accounting period of the company. The claimant company needs to be able to support that the losses meet the relevant conditions – equivalence provision; qualifying loss condition; EEA loss condition and precedence condition.

Non-trading loan relationship deficits
Non-trading loan relationship deficits can be used either
-in the current year and set against total profits including capital gains
-surrendered as a group relief claim (see group relief section)
-carried back against non-trading loan relationship credits
-used against future non-trading including capital gains.

Property income
What can you do with this property loss or Schedule A loss, you have two options as these losses cannot be carried back. For Schedule A losses incurred by a company they should relieved in the following order: 
used in the current year and set against total profits including capital gains
used against future profits of the same property business (losses must be used in full against the first available property profits).

Charges on income
Charges on income include donations to charities and can only be carried forward if there is also a trading loss available for carry forward. Any charges that are not available for carry forward are lost.

Capital losses
A capital loss in a year can be used
– Against other current year capital gains.
– Any unrelieved capital losses are carried forward and set against chargeable gains in the future.

It is important to remember that capital losses cannot be group relieved but groups can transfer assets at no gains/no losses to utilize capital losses OR make a joint election.
Capital losses incurred before an entity becomes a member of a group are restricted to gains from other assets held before the group or gains from assets acquired after group membership but acquired from 3rd parties.

Overseas trade Losses incurred from overseas business can only be used against future profits from overseas business.

Overseas property
Losses incurred from overseas property business can only be used against future profits from overseas property business.

Terminal loss relief
Company’s that cease to trade can claim terminal loss relief for losses generated in the final “12-months” period, carried back <3 years and set off against total profits. A claim must be made within 2 years of the end of the accounting period the loss was made in.