Part 2 of 4
This is the Finance Act 2023 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2024 to 31 March 2025. Candidates sitting ATX-UK after 31 March 2025 should refer to the Finance Act 2024 version of this article (to be published on the ACCA website in 2025).
In Part 1 GF Ltd was formed and began trading. In this part, GF Ltd will acquire an additional business. Once you have read about the company’s plans, stop and think about the possible tax implications before reading on.
In February 2023 Fay identified TP Ltd, a member of a large group of companies, as a possible acquisition. It was agreed (for commercial reasons) that the trade and assets of TP Ltd, rather than the shares, would be acquired.
On 1 April 2023, GF Ltd formed WA Ltd, a wholly owned subsidiary. On the same day, WA Ltd acquired the trade and assets of TP Ltd. TP Ltd had trading losses of £65,000 and capital losses of £18,000 available to carry forward as at 31 March 2023.
The results of the two companies for the year ended 31 March 2024 were as follows.
GF Ltd | Taxable total profits | £140,000 | |
WA Ltd | Trading profits Chargeable gains | £80,000 £20,000 |
On 1 December 2023 GF Ltd made a loan of £14,000 to Lamar, one of the passive investors in the company.
The tax implications arising out of this expansion via acquisition are:
GFL | £ |
£140,000 x 25% | 35,000 |
WAL | £ |
25,000 | |
Less: marginal relief | |
(£125,000 (£250,000 / 2) – £100,000) x 3/200 | (375) |
24,625 | |
Group tax liability (£35,000 + £24,625) | 59,625 |
From a tax point of view, consideration could have been given to GFL acquiring the trade of TPL without the use of a separate subsidiary. This would have resulted in a single company with taxable total profits of £240,000 (£140,000 + £100,000) and a slightly higher tax liability, as set out below.
GFL (owning the trade of TPL) | £ |
£240,000 x 25% | £60,000 |
Less: marginal relief | |
(£250,000 – £240,000) x 3/200 | (150) |
59,850 | |
Increased tax liability (£59,850 – £59,625) | £225 |
The decision as to whether or not to use a separate subsidiary would also need to take account of commercial and legal issues particularly in view of the relatively modest reduction in the total tax liability.
In the remaining parts of this article we will look at the implications of GF Ltd expanding overseas.
The corporation tax issues relating to groups are considered in two further articles:
Written by a member of the ATX-UK examining team
The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The authors and ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.