Part 4 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).
So far we have reviewed the definitions of a group relief group and a capital gains group and considered some aspects of group planning.
In this final part we look at double tax relief and companies joining and leaving the group. Throughout this review of tax planning issues, the term ‘losses’ will be used to represent any/all tax attributes that can be surrendered via group relief.
Any overseas tax available for offset against a company’s corporation tax liability must be taken into account when planning the utilisation of losses. Sufficient overseas profits should remain subject to UK corporation tax in order to avoid wasting the double tax relief as set out in the illustration below.
Illustration
KT Ltd pays corporation tax at the main rate of 25%. It has taxable total profits of £380,000 of which £80,000 has arisen overseas. The overseas tax on the overseas profits is £14,400. There are losses in the KT Ltd group relief group in excess of £380,000 and the intention is to reduce the UK corporation tax liability of KT Ltd, after the deduction of double tax relief, to zero.
KT Ltd will not waste any double tax relief if the UK corporation tax liability in respect of its overseas income equals the overseas tax suffered of £14,400. Accordingly, it needs to have taxable overseas profits of £57,600 (£14,400/25%) and to claim group relief of £322,400 (£380,000 – £57,600). Note that the company can choose to offset the group relief against its UK profits before its overseas profits. The company’s final corporation tax computation is as follows:
| £ | ||
|---|---|---|
| Taxable profits | 380,000 | |
| Less: Group relief | (322,400) | |
| Taxable total profits (all overseas) | 57,600 | |
| Corporation tax at 25% | 14,400 | |
| Less: Double tax relief | (14,400) | |
| Corporation tax liability | Nil |
You should pay close attention to any information in a question relating to the acquisition or disposal of group companies because group relief is restricted where a company is not a member of the group for the whole of the accounting period. For example, where a company is a member of a group for eight months, only eight months of its losses will be available for group relief. Similarly, only eight months of its profits can be relieved via losses from other group companies.
A company joins a group when it is acquired. However, for the purposes of group relief, it leaves a group when there are arrangements in force for it to leave the group: for example, once an agreement for the sale of the company has been reached between the parties subject to a contract being signed. This may well be some time before it is finally sold such that there may be a gap between leaving one group and joining another. Losses arising in the gap period can only be relieved in the loss-making company itself and the use of the losses may be restricted if there is a major change in the nature or conduct of the company’s trade within a five year period beginning no more than three years before the change in ownership.
When dealing with corporate losses, you should think about the possible reliefs in the loss-making company before addressing the group issues. This will ensure that you consider all of the possible options. When you come to deal with the group relief aspects of the question, your first task is to identify the members of the group. You should then watch out for any information in the question which introduces one or more of the issues covered in this article.
Note: Corporation tax issues 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.