(1). Trading losses cannot be surrendered to K Co.
Trading losses can be surrendered to FG Ltd because it is resident in the UK.
(2). The trading losses should be surrendered to:
P Ltd – £7,500
This will reduce the profits of P Ltd to £187,500, the quarterly payments threshold, such that the company will no longer be required to pay its corporation tax liability in instalments.
S Ltd – £22,500 (the balance of the losses)
S Ltd is required to pay corporation tax in instalments. However, it is not possible to reduce its profits down to the quarterly payments threshold. Accordingly, once the profits of P Ltd have been reduced to the threshold, the remaining losses should be surrendered to S Ltd in order to reduce that company’s quarterly payments.
(3). The corporation tax limits for RT Ltd for the 10 months ended 31 January 2024 are:
Upper limit £41,667 (£250,000 x 1/5 x 10/12)
Lower limit £8,333 (£50,000 x 1/5 x 10/12)
From the point of view of loss utilization, RT Ltd can be regarded as paying corporation tax at the following rates.
| £ | |
|---|---|
| On profits up to the lower limit (£8,333 x 19%) | 1,583 |
| On profits between the limits (£26,667 x 26.5%) | 7,067 |
| Total liability | 8,650 |
The losses will first relieve the profits taxed at the marginal rate (£26,667) and then £3,333 of the profits taxed at the small profits rate as set out below.
| £ | |
|---|---|
| On profits between the limits (£26,667 x 26.5%) | 7,067 |
| On profits below the lower limit (£3,333 x 19%) | 633 |
| Total tax saved | 7,700 |