Also referred to as group loss relief.
Group relief in a nutshell
Group relief is a mechanism that allows for the transfer of certain types of current year and carried-forward losses (and other expenses) from loss-making members of a group of companies to members that are profitable. The aim of the relief is to effectively tax the group of companies as one economic unit.
This overview gives brief details of the operation of the relief and some areas where relief is restricted.
What is a group for group relief purposes?
For group relief to apply, one company must be a 75% subsidiary of the other, or both must be 75% subsidiaries of a third company.
To be a 75% subsidiary of another company, the parent company must hold at least 75% of the ordinary share capital and those shares must entitle them to 75% of the distributable profits available to the equity holders and 75% of the company's assets that are available on a winding up.
Can non-residents be part of a group for group relief purposes?
Non-resident companies can make up the group. However, they cannot typically benefit from a group relief claim unless they are within the charge to UK corporation tax (for example, if they have a UK branch).
What is the maximum amount of group relief?
The company that transfers the losses within the group is referred to as the 'surrendering company'. The company that claims the losses is called the 'claimant company'.
The maximum group relief for current year losses is for the lower of the available loss of the surrendering company and the total profits of the claimant company.
For brought forward losses, all available current year claims in both the surrendering and claimant company are assumed to have been made first, and the amount of loss which may be surrendered is restricted to the claimant company’s deductions allowance plus 50% of its profits over its deductions allowance. The deductions allowance is typically £5m per group per year.
What types of losses can be claimed under group relief?
Most forms of current year losses can be surrendered as group relief. The notable exception is capital losses.
Current year trading losses and non-trading loan relationship losses may be surrendered before the surrendering company is required to consider any loss offset in its own computation. For the other types of losses, it is only the amount of ‘excess’ losses that can be surrendered. The amount of ‘excess’ available for group relief refers to amounts in excess of the surrendering company’s gross profits before any losses are set off (including brought forward losses).
For brought forward losses it is only amounts that arose in accounting periods beginning on or after 1 April 2017 that can be group relieved.
Where the loss arose on or after 1 April 2017, then the following types of carried forward losses are available for group relief:
- trading losses
- non-trading deficits from loan relationships
- non-trading losses on intangible fixed assets
- expenses of management of an investment business
- loss made in a UK property business
Restrictions on amount of group relief?
Where group companies have different accounting periods the amount of group relief is restricted. The losses of the surrendering company and profits of the claimant company must be time apportioned in such cases and it is only the profits and losses in the corresponding overlapping periods that can be compared when determining the level of group relief available.
Both companies must also be part of the same group ownership for the corresponding period when calculating the claim. Group relief is therefore not available for losses made before the company joins the group. Similar rules apply when companies leave the group, and group relief is not possible after the date that arrangements exist for the transfer of the company to another person.
What about losses of non-UK group companies?
Where an overseas company which operates a business or activity that is within the scope of UK tax has losses, it can surrender these UK losses in limited circumstances provided relief is not already given for the losses against non-UK profits. The exact operation of the rules depends on whether the company is resident in an EEA territory or not.
Overseas losses can, in some circumstances, also be surrendered as group relief. This can apply where they relate to an overseas permanent establishment of a UK company. In addition, EEA resident companies can also surrender overseas losses to a UK parent company or a UK resident 75% subsidiary of the UK parent company provided certain conditions are met.
How do I make a group relief claim?
A claim for group relief is generally made via the claimant company’s tax return. The amount being claimed, the surrendering company and the period to which the claim relates should all be specified in the claim. Additional obligations can apply where the claim is in respect of overseas losses of non-resident companies.
A claim requires the written consent of the surrendering company, referred to as a ‘notice of consent’.
The time limit for making a claim is typically 12 months after the due filing deadline for the company’s tax return, though later dates can apply (for example, where an enquiry has been opened into the company’s tax return).