Chapter 4: Claims for group relief
Overview
482.This Chapter sets out the conditions for relief involving UK related companies (under Chapter 2) and EEA related companies (under Chapter 3). It also sets out restrictions on relief that may be given on claims.
Section 129: Overview of Chapter
483.This section sets out the structure of the Chapter. It is new.
Section 130: Group relief claims on amounts surrenderable under Chapter 2
484.This section sets out the basic rules for claims for group relief surrendered by UK related companies. It is based on section 402 of ICTA and paragraph 70 of Schedule 18 to FA 1998.
485.The corresponding rules for EEA related companies are in section 135.
486.Subsection (2) requires a claim by the claimant company. The surrender is required by section 99(6). The subsection goes on to set out three conditions for a claim.
There must be a consent (see section 99(6)).
There must be an overlapping period (see section 142).
The relief must be available as a result of the existence of:
a group (see section 131);
a consortium, not involving a “link” company (see section 132); or
a consortium involving a “link” company (see section 133).
487.The detail of each part of the third condition includes a requirement that the companies concerned are “UK related” (defined in section 134). That requirement in the case of a group is based on section 402(2) of ICTA.
488.In the case of a consortium it is explicit in section 402(3A) and (3B) of ICTA that the claimant and surrendering companies must be UK related.
489.In the case of a claim for the losses of a company (C) owned by a consortium, section 406(2) of ICTA applies only if the link company (L) could make a claim. That is the case only if L is UK related.
490.In the case of a claim by a company (C) owned by a consortium there is no explicit rule in section 406(5) of ICTA that is equivalent to the rule in section 406(2). But it is implicit in the section: indeed, subsection (8) can work only if the link company (L) is UK related; otherwise section 402(3A) and (3B) of ICTA would prevent L from being the surrendering company.
491.So each of the conditions in sections 131 to 133 is explicit in requiring that all of the surrendering, claimant and link companies are UK related.
492.Subsection (3) makes clear that more than one company may claim the relief available in the surrendering company. But the total claimed cannot exceed the relief available (see section 137(7)).
Section 131: The group condition
493.This section deals with straightforward claims for group relief (that is, claims not involving consortiums) surrendered by a UK related company. It is based on section 402 of ICTA.
494.The corresponding rule for EEA related companies is in section 136.
Section 132: Consortium condition 1
495.This section allows claims involving companies owned by a consortium. It is based on section 402 of ICTA.
496.Subsection (2) allows group relief to go “upwards” from a company owned by a consortium to a member of the consortium.
497.Subsection (3) allows group relief to go “downwards” from a member of a consortium to a company owned by the consortium.
498.Subsections (4) and (5) deny relief if the consortium relationship depends on shares that are held by a share-dealing company as part of its circulating capital.
Section 133: Consortium conditions 2 and 3
499.This section extends the relief that is available to consortiums. It is based on sections 402 and 406 of ICTA.
500.The extension involves a company (“the link company”) that is a consortium member and is also a member of a group. There are special rules for companies in the same group as the company owned by a consortium in sections 148 and 149.
501.Subsection (1) allows relief to go “upwards” from a company (C) owned by a consortium to a company (P) that is in the same group as the link company (L).
502.Subsection (2) allows relief to go “downwards” from a company (P) that is in the same group as the link company (L) to a company (C) owned by the consortium.
503.Subsections (3) and (4) deny relief if the consortium relationship depends on shares that are held by a share-dealing company as circulating capital.
504.The rule in subsections (3) and (4) is not explicit in the source legislation. If shares in C are held by L as circulating capital, section 402(4) of ICTA prevents a consortium claim by L. Similarly, C may not claim L’s losses etc. It follows that when P steps into the shoes of L in accordance with section 406(2) or (5) of ICTA P may not claim C’s losses etc and C may not claim P’s losses etc.
Section 134: Meaning of “UK related” company
505.This section defines “UK related”. It is based on section 402 of ICTA.
Section 135: Group relief claims on amounts surrenderable under Chapter 3
506.This section gives the rules for claims for group relief surrendered by EEA related companies. It is based on section 402 of ICTA and paragraph 70 of Schedule 18 to FA 1998.
507.The corresponding rules for UK related companies are in section 130.
508.Subsection (2) requires a claim by the claimant company. The surrender is required by section 99(6). The subsection goes on to set out three conditions for a claim.
There must be a consent (see section 99(6)).
There must be an overlapping period (see section 142).
The relief must be available as a result of the existence of a group (see section 136).
509.Subsection (3) makes clear that more than one company may claim the relief available in the surrendering company. But the total claimed cannot exceed the relief available (see section 137(7)).
Section 136: The EEA group condition
510.This section sets out the condition for group relief to be surrendered by an EEA related company. It is based on section 402 of ICTA.
511.Subsections (2) and (3) set out the condition, that either the claimant company or the company that owns both it and the surrendering company is UK resident.
Section 137: Deduction from total profits
512.This section explains how group relief is given to the claimant company. It is based on sections 403, 407 and 411 of ICTA.
513.Subsection (1) is the link to section 4.
514.Subsection (2) makes clear that the claimant company may claim all or part of the surrendering company’s surrenderable amounts.
515.Subsection (3) subjects subsection (2) to the restrictions later in the Chapter. Paragraph (e) refers to one of the restrictions mentioned in section 403(4) of ICTA. The other restrictions in that subsection are referred to in sections 99(5) and 105(5) or are rewritten in section 109.
516.Subsection (4) is the rule that group relief is the final deduction to be given in arriving at a company’s taxable profits, subject only to the exceptions set out in subsection (5).
517.Subsection (5) sets out the reliefs that are to be given after group relief. So, for instance, group relief may reduce a company’s profits for an accounting period to an extent that there is a restriction to relief for losses carried back to that accounting period.
518.Subsection (6) makes clear that each relief in subsection (4) that depends on the making of a claim is to be taken account of on the assumption that the relevant claim is made. But there is an exception in the case of relief for non-trading loan relationship deficits: that relief is taken account of only if the relevant claim is actually made.
519.Subsection (7) ensures that an amount of relief is not given twice.
Section 138: Limitation on amount of group relief applying to all claims
520.This section restricts the amount of group relief to the profits available to absorb it. It is based on section 403A of ICTA.
521.It compares the “unused part of the surrenderable amounts” (defined in section 139) with the “unrelieved part of the claimant company’s available total profits” (defined in section 140). The amount of group relief is restricted to the lower of the two compared amounts.
Section 139: Unused part of the surrenderable amounts
522.This section defines “unused part of the surrenderable amounts” for the purpose of section 138. It is based onsections 403A and 403B of ICTA.
523.Subsection (1) introduces the rules for calculating the “unused part of the surrenderable amounts”. In particular, the rules cater for the cases where:
the surrendering company and the claimant company have different accounting periods; or
there are multiple claims for the surrendering company’s losses etc.
524.Subsection (2) sets out the restriction to be made if the surrendering company and claimant company have different accounting periods. In that case the “surrender period” (see section 99(7)) and “claim period” (see section 130(2)) are not the same. The loss etc is apportioned on a time basis to the “overlapping period” (see section 142).
525.Subsection (3) introduces the calculation that has to be made if there are multiple claims for the surrendering company’s loss etc. It considers what “prior claims” have been made and what “prior surrenders” have been made as a result.
526.Subsection (4) defines a “prior claim”.
527.Subsection (5) is a method statement for calculating the total amount of any “prior claims”. The overlapping period for any prior claim is given by section 142.
528.If no part of that overlapping period falls within the claim period of the current claim, that prior claim is ignored. But if part of theoverlapping period does fall within the claim period of the current claim a time-apportioned amount of the prior claim is taken into account.
529.The total of the amounts to be taken into account for prior claims is deducted to arrive at the usable amount of the surrenderable amounts.
Section 140: Unrelieved part of claimant company’s available total profits
530.This section defines “unrelieved part of the claimant company’s available total profits” for the purpose of section 138. It is based onsections 403A, 403B and 403D of ICTA.
531.Subsection (1) introduces the rules for calculating the “unrelieved part of the claimant company’s available total profits”. In particular, the rules cater for the cases where:
the surrendering company and the claimant company have different accounting periods; or
there are other claims by the claimant company for the claim period.
532.Subsection (2) sets out the restriction to be made if the surrendering company and claimant company have different accounting periods. In that case the “surrender period” (see section 99(7)) and “claim period” (see section 130(2)) are not the same. The claimant company’s available total profits are apportioned on a time basis to the “overlapping period” (see section 142).
533.Subsection (3) introduces the calculation that has to be made if there are other claims by the claimant company for the claim period. It considers what “prior claims” have been made and what “previously claimed group relief” has been given as a result.
534.Subsection (4) defines a “prior claim”.
535.Subsection (5) is a method statement for calculating the total amount of any “prior claims”. The overlapping period for any relevant prior claim is given by section 142.
536.If no part of that overlapping period falls within the claim period of the current claim, that prior claim is ignored. But if part of theoverlapping period does fall within the claim period of the current claim a time-apportioned amount of the prior claim is taken into account.
537.The total of the amounts to be taken into account for relevant prior claims is deducted to arrive at the unrelieved amount of the claimant company’s total profits.
538.Subsection (6) apportions the previously claimed group relief to the period of the current claim.
539.Subsection (7) explains what is meant by “available total profits” in subsection (1). “Total profits” are defined in section 4 to include only amounts charged to corporation tax. So there is no need to exclude non-chargeable profits and section 403D(2)(a) of ICTA is not rewritten in this section.
540.Section 403A(2)(b) of ICTA refers to “total profits … reduced by … previously claimed group relief”. Such group relief can have been given only against profits “as reduced by any other relief” (section 407(1)(b) of ICTA). So subsection (7) of this section makes clear that the total profits must be reduced by such other relief before being further reduced by group relief.
541.Subsection (8) deals with the case of a claimant company that is not resident in the United Kingdom. Its available total profits do not include any profits that are “double taxation exempt” (see section 186).
Section 141: Sections 139 and 140:supplementary
542.This section sets out three rules about relevant prior claims. It is based on section 403A of ICTA.
543.Subsection (1) explains what happens if two or more claims are made at the same time. They are treated as made in whatever order the company or companies choose, by making an election.
544.The section does not specify that the election is to be made “by notice to any officer of the Board” (section 403A(7)(a) of ICTA). The rules in Schedule 18 to FA 1998 apply for the purposes of this Act. Either the election is to be made in a company’s return or it is to be made to “an officer of the Board” (paragraph 2(1) of Schedule 1A to TMA, applied by paragraph 59 of Schedule 18 to FA 1998).
545.If no such election is made, the choice is made by HMRC.
546.Subsection (2) introduces the second rule, about measuring a relevant prior claim. The amount of such a claim is determined when it is made. So it takes account of any earlier claims; and takes no account of any later claims.
547.The section does not rewrite the rule in section 403A(6) of ICTA about a claim becoming final. See Change 24 in Annex 1.
548.Subsection (3) sets out the third rule. It substitutes a “just and reasonable” apportionment for any time-apportionment prescribed by section 139 or 140.
Section 142: Meaning of “the overlapping period”
549.This section defines “the overlapping period” for Chapter 4 of this Part of the Act. It is based on section 403A of ICTA. The expression as defined in this section is used in sections 139, 140, 143 and 144.
550.Subsection (1) is the basic rule. The overlapping period is the period that is common to:
the surrender period (of the surrendering company – defined in section 99(7)); and
the claim period (of the claimant company – defined in section 130(2)).
551.Subsection (2) excludes from the overlapping period any part of it during which the conditions for relief are not satisfied.
552.Subsection (3) sets out the conditions for relief that have to be satisfied during the overlapping period. Only one of the conditions is relevant to any claim. They are the conditions set out in sections 131 to 133 (for UK related companies) and 136 (for EEA related companies).
Section 143: Condition 1: surrendering company owned by consortium
553.This section is the basic rule about relief surrendered by a company to a member of the consortium that owns it. It is based on section 403C of ICTA.
554.Subsection (1) ties the section to consortium condition 1: that is, a case that does not involve a link company. Cases involving link companies are dealt with in sections 145 and 146.
555.Subsection (2) restricts the relief by reference to the consortium member’s interest in the surrendering company.
556.Subsection (3) sets out what that interest is. Usually it is the proportion represented by the consortium member’s shareholding in the surrendering company. But if that shareholding entitles the consortium member to a lower proportion of the surrendering company’s profits or assets the lower proportion is used.
557.Subsection (4) deals with the case where the consortium member’s interest in the surrendering company varies in the overlapping period (see section 142). In that case an average is taken.
558.Subsection (5) deals with the case where a trading company (T) is indirectly owned by a consortium through a holding company (H) (see section 185). In that case the various proportions referred to in the section are calculated by reference to the consortium member’s (M1’s) interest in H.
Section 144: Condition 1: claimant company owned by consortium
559.This section is the basic rule about relief surrendered by a member of a consortium to a company that is owned by the consortium. It is based on section 403C of ICTA.
560.Subsection (1) ties the section to consortium condition 1: that is, a case that does not involve a link company. Cases involving link companies are dealt with in sections 145 and 146.
561.Subsection (2) restricts the relief by reference to the consortium member’s interest in the claimant company.
562.Subsection (3) sets out what that interest is. Usually it is the proportion represented by the consortium member’s shareholding in the claimant company. But if that shareholding entitles the consortium member to a lower proportion of the surrendering company’s profits or assets the lower proportion is used.
563.Subsection (4) deals with the case where the consortium member’s interest in the claimant company varies in the overlapping period (see section 142). In that case an average is taken.
564.Subsection (5) deals with the case where a trading company (T) is indirectly owned by a consortium through a holding company (H) (see section 185). In that case the various proportions referred to in the section are calculated by reference to the consortium member’s (M1’s) interest in H.
Section 145: Conditions 2 and 3: limitations in sections 143 and 144
565.This section is the basic rule about relief involving a link company (see section 133). It is based on section 406 of ICTA.
566.Subsection (2) deals with a claim by a company that is a member of the same group as the link company for relief from a company owned by the consortium.
567.The overlapping period for the claim is still determined by reference to the accounting periods of the actual claimant company (P) and the surrendering company (C). But the subsection treats the link company (L) as if it were the claimant company for the purpose of section 143(3). So the “applicable proportion” of the surrenderable amounts is based on L’s interest in Cin the overlapping period (if necessary, based on an average of that period – see section 143(4)(b)).
568.Subsection (3) deals with a claim by a company owned by a consortium for relief from a company that is a member of the same group as the link company.
569.The overlapping period for the claim is still determined by reference to the accounting periods of the claimant company (C) and the actual surrendering company (P). But the subsection treats the link company (L) as if it were the surrendering company for the purpose of section 144(3). So the “applicable proportion” of C’s profits is based on L’s interest in C in the overlapping period (if necessary, based on an average of that period – see section 144(4)(b)).
Section 146: Conditions 2 and 3: companies in link company’s group
570.This section restricts the amount of relief that can be claimed in cases involving link companies. It is based on section 406 of ICTA.
571.Subsections (1) to (3) deal with the case of the surrender of relief by a company owned by a consortium. The link company’s group, as a whole, cannot claim more relief than would have been available to the link company alone.
572.Subsections (4)> to (6) deal with the case of the surrender of relief by the link company and members of its group to a company owned by the consortium. The claimant company cannot claim relief in an amount greater than its profits that would be available to absorb relief surrendered by the link company alone.
573.Subsection (7) explains how to operate the restriction in subsection (6) if the link company and claimant company have different accounting periods. The tests in section 144 are applied in the claimant company’s accounting period.
574.Subsection (8) supplies definitions for the section.
Section 147: Conditions 1 and 2: surrenderable amounts including trading loss
575.This section restricts the amount of trading losses that can be surrendered by a company owned by a consortium. It is based on section 403ZA of ICTA.
576.Subsection (1) applies the section to consortium condition 1: that is, a case that does not involve a link company.
577.Subsection (2) extends the section to consortium condition 2: that is, cases involving a link company (L) where the surrendering company (C) is owned by a consortium.
578.Subsection (3) is the rule that a trading loss within section 37 (“sideways relief”) is not available for group relief to the extent that relief could be given for it within the surrendering company.
579.Subsection (4) explains how the rule in this section interacts with the rule in section 148: this section applies first to reduce the surrenderable losses.
Section 148: Conditions 1 and 2: surrendering company in group of companies
580.This section treats the company owned by a consortium and any companies in its group as a single company for the purposes of surrenders by companies in the group. It is based on sections 405 and 406 of ICTA. The rule about companies in the same group as the consortium member is in section 146.
581.Subsection (1) applies the section to consortium condition 1: that is, a case that does not involve a link company.
582.Subsection (2) extends the section to consortium condition 2: that is, cases involving a link company (L) where the surrendering company (S) is owned by a consortium (or is a member of the same group as the company owned by the consortium).
583.Subsections (3) and (4) restrict the relief available to any excess of the surrenderable amounts over the “group’s potential relief”.
584.Subsection (5) sets out how to calculate the “group’s potential relief”. This is the amount of profits that could be covered by all the available losses etc within the group. As section 147(3) makes clear, within the individual companies in the group, trading losses are treated as set off first against other profits.
585.If the consortium company C and its subsidiary S have different accounting dates, it may be necessary to apportion a loss to the surrender period in determining the “group’s potential relief”. See Change 25 in Annex 1.
586.Subsection (6) clarifies the basis on which the group relief claims are assumed to be made within the group.
Section 149: Conditions 1 and 3: claimant company in group of companies
587.This section treats the company (C) owned by a consortium and any companies (S etc) in its group as a single company for the purposes of claims by companies in the group. It is based on section 405 of ICTA. The rule about companies in the same group as the consortium member is in section 146.
588.Subsection (1) applies the section to consortium condition 1: that is, a case that does not involve a link company.
589.Subsection (2) extends the section to consortium condition 3: that is, cases involving a link company (L) where the claimant company (S) is owned by a consortium (or is a member of the same group as the company owned by the consortium).
590.Subsections (3) to (5) restrict the relief available to the amount that remains after relief is notionally given by way of group relief for all the available losses etc within the group. But those available losses etc may already have been reduced by actual claims within the group.
591.Subsection (6) clarifies the basis on which the group relief claims are treated as already made within the group.
