How Group Relief Works
Tax Question
How does group relief work?
Once a group relationship is established, group relief allows a loss-making group member to surrender certain losses and deductions to a profitable group member, which then uses them to reduce its own taxable profits – cutting the group’s overall corporation tax bill without needing to merge the companies or move assets around.
Broadly, two companies are in the same group if:
- One company is a 75% subsidiary of the other, or
- Both companies are 75% subsidiaries of a third company (a common parent).
This 75% threshold can be met through direct or indirect ownership, so a chain of holding companies can still form a group, provided the effective ownership at each link maintains the 75% relationship all the way up. It’s worth noting that indirect ownership is calculated by multiplying the percentages down the chain, so small shortfalls at each level can compound and take the effective interest below 75%, breaking the group relationship even if it looks fine at first glance.
Tax Answer
What can be surrendered?
The surrendering company (i.e., the loss-making company) may surrender by way of group relief, current year:
- Trading losses
- Non-trading deficits (NTLR)
The total amount of these losses may be surrendered before the surrendering company is required to consider any loss offset in its own taxable profit computation.
Furthermore, the surrendering company may also surrender by way of group relief, in the following order, current year:
- excess qualifying charitable donations
- excess UK property business losses
- excess management expenses
- excess non-trading losses on intangible fixed assets IFAs
Where losses are made in accounting periods beginning on or after 1 April 2017 and are not utilised in the year they are incurred, it is possible for a company to carry forward those losses and surrender them (in whole or in part) to other group companies in later accounting periods against total taxable profits.
The claimant company
The claimant company must use these losses in its current accounting period. Any losses that it has claimed under group relief cannot be carried back, carried forward, or given to another group member.
Losses that have been claimed by a company by way of group relief are offset against its total taxable profits after qualifying charitable donations and any current year or brought-forward loss claims. However, the offset is made before losses and deficits brought back from a future period, i.e., losses carried back do not displace group relief already claimed.
Group relief for carried-forward losses
A claimant company that has carried forward losses of its own must utilise those losses as far as possible before claiming group relief for the carried forward losses of another group company.
Effectively, the maximum relief that may be claimed is the lower of:
- The surrenderable amount of the surrendering company, and
- The claimant company’s spare loss capacity after any amount of the current year group relief it may have claimed.
For more information, please contact us at: consultancy@vantagefeeprotect.com
Jack Hurren
Tax Advisor
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