4th March 2024How to optimise your company’s tax position through group relief

Understanding group relief can be helpful in optimising your company’s tax position. The long-standing Corporation Tax relief allows companies within the same group to surrender losses to another company in the group for tax purposes.

The terminology and rules surrounding corporate groups can be complex, and there are several areas to consider when looking to take advantage of group relief. In this article, we answer six commonly asked questions.

1. What is group relief?

Group relief is a tax provision that allows companies in the same group to transfer losses between them, meaning that if one company in the group makes a loss, it can surrender that loss to another company in the group with profits. The receiving company can then use those losses to reduce its own taxable profits and lower its tax bill.

2. Who qualifies for group relief?

To qualify for group relief, companies must be part of a corporate structure where one company owns, directly and/or indirectly, 75% or more of another company – known as the 75% test.

It is important to note that the 75% test must satisfy several criteria. For non-capital losses, this includes ordinary shares held and also entitlement to distributable profits, and assets on a winding up, but it does not apply to shares held for sale. For capital losses, the 75% test looks at ordinary share capital only.

3. How does group relief work?

The amount of losses that can be surrendered is subject to certain limitations as follows:

• For non-capital losses such as trade losses and excess loan relationships, the surrendering company can surrender losses up to the lower of its own losses and the taxable profits of the claimant company, regardless of the other profits or losses of the surrendering company.
• For other non-capital losses, the surrendering company can surrender the lower of its losses in excess of its gross profits and the profits of the claimant company.
• For capital losses, the surrendering company can surrender a capital loss against the net chargeable gains in the claimant company.

The claimant company can use these losses to reduce its own taxable profits and lower its Corporation Tax bill.

4. What are the time limits for claiming and using group relief?

Companies must claim any available group relief within two years from the end of the accounting period.

5. How does group relief differ from consortium relief?

Group relief applies specifically to companies within a corporate group and allows losses to be transferred between group members subject to certain conditions. By contrast, consortium relief applies to companies outside of a corporate group that are owned by a consortium of companies.

To qualify for consortium relief, each member of the consortium must be a company which holds a minimum of 5% of the ordinary share capital in the trading company, but none of them can own 75% or more. Consortium relief is only available between the trading company and the consortium members, and not between the members themselves.

6. Are payments typically made for losses surrendered via group/consortium relief?

Companies that are members of a group or consortium may agree to make payments to each other in exchange for losses surrendered, for example to compensate a minority shareholder for their share of the additional future tax charge caused by the surrender of the losses. These payments are ignored for Corporation Tax purposes, provided they are less than the amount of losses surrendered. These payments are also typically ignored for VAT purposes. However, it is worth noting that where the payments are linked to the provision of a service, then the payments for the surrender of losses can be subject to VAT.

To discuss your specific circumstances, please contact Andrew Tall.