Group Relief of Losses (>75% Group)
To qualify for GROUP RELIEF MEMBERSHIP a company must own >75% of the share capital of a subsidiary AND have EFFECTIVE INTEREST >75% in any SUB-SUBSIDIARY for them to be in the same group for group relief purposes.
For example, if a parent company owns 95% in subsidiary 1, which in turn owns 80% in subsidiary 2, then they would all qualify for GROUP RELIEF MEMBERSHIP as the parent owns more than 75% in subsidiary 1 (95%) and has an EFFECTIVE INTEREST (0.95 x 0.8 = 0.76) of 76% in subsidiary 2.
Companies in a >75% GROUP FOR LOSS RELIEF can transfer ANY PART of a current year TRADING LOSS from one group company to set off against ANY PART of another company’s TAXABLE TOTAL PROFIT (TTP) of a CORRESPONDING ACCOUNTING PERIOD.
A company can be in more than 1 GROUP RELIEF GROUP.
TIME APPORTIONING THE LOSS AVAILABLE FOR SURRENDER: A company can surrender a CURRENT PERIOD loss, it does NOT need to surrender against its own profits first. A company can surrender a BROUGHT FORWARD LOSS but it MUST offset against its own TOTAL PROFITS first.
Corresponding Accounting Periods Known As Co-Terminus Periods
Where the companies do not have COTERMINOUS year ends, the available loss for group relief must be time apportioned. THEREFORE take the CURRENT PERIOD LOSS & BROUGHT FORWARD LOSS and time apportion BOTH. eg LOSS BROUGHT FORWARD £30,000 and CURRENT PERIOD LOSS £50,000 but the corresponding period is only 7 months, therefore £80,000 * (7/12) = £46,667. If you think about it, the BROUGHT FORWARD loss was also for a 12 month trading period and should only be offset against a similar period.
Conditions for loss relief:
The LOSS RELIEVED must be the LOWER OF:
- The loss of the surrendering company for the exact same period against which it is being surrendered.
- The profit of the claimant company for the exact same period against which it is being claimed.
Companies Joining a Group For Loss Relief
When a new company joins a group for loss relief, TRADING LOSSES arising in that subsidiary BEFORE IT JOINS THE GROUP are NOT AVAILABLE for surrender to companies in the group for 5 YEARS.
However, TRADING LOSSES BROUGHT FORWARD can be surrendered to the new subsidiary without restriction.
Companies Leaving a Group For Loss Relief
The loss must be TIME APPORTIONED if the company leaves the Group part way through the year. For the purposes of GROUP RELIEF FOR LOSSES, a company is deemed to have left the group once ARRANGEMENTS FOR SALE are in place. Losses can only be surrendered up to that date ARRANGEMENTS FOR SALE are made NOT the date the company is sold.