Chapter 2: Surrender of company’s losses etc for an accounting period
Overview
344.This Chapter sets out what relief is available and the main restrictions on relief.
Section 98: Overview of Chapter
345.This section sets out the structure of the Chapter. It is new.
Section 99: Surrendering of losses and other amounts
346.This section lists the losses and other amounts that may be surrendered as group relief. It is based on sections 402, 403, 403ZC and 403ZD of ICTA.
347.In ICTA the amounts are referred to as “trading losses and other amounts eligible for relief”. The trading losses are explained in section 403ZA of ICTA. The “other amounts” are explained in sections 403ZB (excess capital allowances), 403ZC (non-trading deficit on loan relationships) and 403ZD (charges, Schedule A losses, management expenses and non-trading loss on intangible fixed assets).
348.This section adopts a similar approach by specifying the losses and other amounts that may be subject to a group relief claim. There is a more detailed explanation of each of those losses and other amounts in sections 100 to 104.
349.Subsection (2) uses a test of whether the losses and other amounts are “eligible for corporation tax relief”.
350.Subsections (3) and (4) contrast the treatments of:
amounts within paragraphs (a) to (c) of subsection (1), which may be surrendered whatever the profits of the surrendering company; and
amounts within paragraphs (d) to (g) of subsection (1), which may be surrendered only to the extent that they exceed the surrendering company’s total profits (see section 105(3)).
351.Subsection (5) refers to the other restrictions on amounts that may be surrendered in sections 106 to 110. It also refers to the restrictions (mentioned in section 403(4) of ICTA) that operate by making amounts not available for set off.
352.Subsection (6) cross-refers the requirement (in Schedule 18 to FA 1998) that the surrendering company must consent to the surrender.Section 130(2) requires that there is also a claim.
353.Subsection (7) introduces the label “surrenderable amounts” to refer to the losses and other amounts that may be surrendered.
Section 100: Meaning of “trading loss”
354.This section explains which trading losses are available for relief. It is based on section 403ZA of ICTA.
355.Subsection (1) is the link to the basic rule in section 99(1)(a).
356.Subsection (2) excludes from the available losses:
losses made in a trade carried on wholly outside the United Kingdom (the profits of which were historically charged to tax under Schedule D Case V); and
non-commercial losses for which relief would not be available to the surrendering company under the loss relief rules (see Part 4).
357.This section does not rewrite the requirement in section 403ZA(1) of ICTA that a trading loss is calculated in the same way as a loss within section 393A of ICTA. This is because the requirement is already rewritten in section 47 of CTA 2009.
Section 101: Meaning of “capital allowance excess”
358.This section explains which capital allowances are available for relief. It is based on section 403ZB of ICTA.
359.Subsection (1) is the link to the basic rule in section 99(1)(b). It identifies the capital allowances as those to be given in a qualifying activity of “special leasing”.
360.A company may surrender the allowances which would otherwise be available for relief against its total profits under section 260 of CAA.
361.Subsections (3) and (4) set out how to deal with “special leasing” allowances that are brought forward:
the amount to be surrendered is limited to the allowances for the current period, without regard to any allowances brought forward; and
in calculating the excess of allowances over the leasing income of the current period, the amount of the income is not reduced by allowances brought forward.
Section 102: Meaning of “UK property business loss”
362.This section explains which property income losses are available for relief. It is based on section 403ZD(3) of ICTA.
363.Subsection (1) is the link to the basic rule in section 99(1)(e).
364.Subsection (2) makes clear that a loss brought forward under the loss relief rules (see Part 4) is not available even though those rules treat the loss as made in the surrender period.
365.A non-commercial property loss is not eligible for relief under the loss relief rules (see Part 4). So it is not “eligible for corporation tax relief (apart from this Part)” – see section 99(2). It follows that such a loss may not be surrendered as group relief and there is no need to rewrite section 403ZD(3)(b) of ICTA.
Section 103: Meaning of “management expenses”
366.This section explains which management expenses are available for relief. It is based on section 403ZD(4) of ICTA.
367.Subsection (1) is the link to the basic rule in section 99(1)(f).
368.Subsection (2) excludes from the available management expenses amounts brought forward from an earlier period under:
section 1223 of CTA 2009 (management expenses carried forward); or
the property loss rules (see Chapter 4 of Part 4 of this Act).
Section 104: Meaning of “non-trading loss on intangible fixed assets”
369.This section explains that a non-trading loss that is available for relief is one calculated under Part 8 of CTA 2009. It is based on section 403ZD(6) of ICTA.
370.Subsection (1) is the link to the basic rule in section 99(1)(g).
371.Subsection (2) excludes from the available loss amounts brought forward from an earlier period.
Section 105: Restriction on surrender of losses etc within section 99(1)(d) to (g)
372.This section sets out a special rule which applies only to “relevant amounts”. They are:
qualifying charitable donations;
a UK property business loss;
management expenses; and
a non-trading loss on intangible assets.
373.The section is based on sections 403 and 403ZE of ICTA.
374.Subsection (1) introduces the “relevant amounts” to which the section applies.The “relevant amounts” do not include the main reliefs (trading losses, excess capital allowances and non-trading loan relationships deficits), which may be surrendered even if the surrendering company has profits against which the main reliefs may be set.
375.Subsections (2) and (3) are the main rule: the relevant amounts are available only to the extent that they cannot be deducted from the surrendering company’s own profits.
376.Subsection (4) deals with the case where the reliefs are restricted. In that case, the subsection determines the make-up of the relief that is surrendered.
377.The rule in this section compares the amounts within section 99(1)(d) to (g) with the “surrendering company’s gross profits”. Subsection (5) defines “gross profits” for the purposes of this section.
378.Subsection (6) refers to one of the restrictions mentioned in section 403(4) of ICTA. The other restrictions are in sections 99(5) and 137(3)(e).
Section 106: Restriction on losses etc surrenderable by UK resident
379.This section eliminates from group relief some amounts that are attributable to a foreign permanent establishment. It is based on section 403E of ICTA.
380.In most cases the profits of a foreign permanent establishment are taxed in the country where the permanent establishment is. The profits remain chargeable to United Kingdom tax but credit is given for foreign tax on the profits. If the permanent establishment is not profitable relief may be available for the loss etc in the foreign country. This section prevents relief being given for the same loss etc both in the foreign country and in the United Kingdom.
381.Subsection (1) restricts the operation of the section to companies resident in the United Kingdom.
382.Subsection (2) sets out the basic rule: a loss or other amount attributable to a foreign permanent establishment is not available for group relief if it qualifies for relief from non-UK tax.
383.Subsections (3) and (4) set out how to calculate the loss etc of a foreign permanent establishment. The calculation is done on the same basis as that for the calculation of the losses etc of a United Kingdom permanent establishment.
384.Subsection (5) explains the sort of relief from non-UK tax with which the section is concerned: it is relief from tax in the country where the permanent establishment is; and the relief is against the non-UK profits (defined in section 108) of any person other than the surrendering company. In other words, the section is concerned with foreign group relief.
385.Subsections (6) and (7) resolve a potential circularity in the rules. Foreign tax rules may deny relief for an amount if it qualifies for relief from United Kingdom tax. In that case, it would not be clear how the rule in subsection (5) operates.
386.The circularity is resolved by giving relief where the company is resident (that is, in the United Kingdom). But there is an exception to this rule if the company is also resident in the country where the permanent establishment is. In that case, United Kingdom relief is denied.
Section 107: Restriction on losses etc surrenderable by non-UK resident
387.This section eliminates from group relief amounts that arise from activities that are not within the United Kingdom tax net, or are relieved abroad. It is based on section 403D of ICTA.
388.Subsection (1) restricts the operation of the section to companies not resident in the United Kingdom that carry on a trade through a permanent establishment in the United Kingdom.
389.Subsection (2) introduces the three conditions (A, B and C) that have to be met if the non-UK resident company is to be able to surrender group relief.
390.Subsection (3) sets out condition A. The activities of the company must bring it within the charge to corporation tax. So its business must be a trade carried on through a permanent establishment in the United Kingdom (see section 19 of CTA 2009).
391.Subsection (4) sets out condition B. A company may be within the charge to corporation tax because it carries on its business through a permanent establishment in the United Kingdom but those activities (for instance, those of an airline) may be exempt from United Kingdom tax as a result of a DTA. In that case, any losses arising from the exempt activities may not be surrendered as group relief.
392.Subsections (5) and (6) set out condition C. A loss or other amount attributable to a United Kingdom permanent establishment is not available for group relief if it qualifies for relief from non-UK tax.
393.Subsection (7) explains how Condition C works if a foreign tax system (such as those of France and Australia) operates by exempting foreign (in this case, United Kingdom) profits from tax in the foreign country. Such a system may need to calculate the United Kingdom profits in order to exempt them. But that calculation does not mean that the profits in question are the subject of foreign tax relief.
394.Subsections (8) and (9) resolve a potential circularity in the rules. Foreign tax rules may deny relief for an amount if it qualifies for relief from United Kingdom tax. In that case, it would not be clear how condition C operates.
395.The section changes the approach of section 403D(6) of ICTA. Instead of ignoring the condition in foreign tax law the section sets out the result. That is that the loss etc is treated as allowable for foreign tax.
396.Section 403D(11) of ICTA serves only to clarify the interface between relief under that section and relief under the EEA rules in sections 403F and 403G of ICTA. In this Act it is clear that relief under Chapter 2 of this Part is separate from, and (potentially) in addition to, relief under Chapter 3 of this Part. So section 403D(11) is not rewritten.
Section 108: Meaning of “non-UK profits”
397.This section defines “non-UK profits”for sections 106 and 107. It is based on sections 403D and 403E of ICTA.
398.Subsections (1) and (2) set out the basic rule. The profits are those that are charged to “non-UK tax” (see section 187). The definition includes amounts that are taken into account in calculating those profits. But it does not include any profits that are taken into account in calculating the profits of any person for United Kingdom tax purposes.
399.Subsection (3) deals with profits that are exempted from United Kingdom tax by a DTA. Such profits may be non-UK profits. Subsection (2) refers to the “total profits” of any person. Section 4(3) defines that expression 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.
Section 109: Restriction on losses etc surrenderable by dual resident
400.This section restricts the relief available to dual resident investing companies. It is based on section 404 of ICTA.
401.Subsections (1) and (2) are the basic rule. A company that is resident both in the United Kingdom and in another country may not surrender losses etc as group relief. But the rule applies only to investing companies, a concept that is defined in the following subsections.
402.Subsection (3) defines the first sort of company to which the section applies. It is a company that does not carry on a trade.
403.Subsection (4) defines the second sort of company to which the section applies. It is a trading company whose activities are of a sort more usually associated with an investment business.
404.Subsection (5) defines the third sort of company to which the section applies. The rule prevents an investing company being “dressed up” as a trading company.
Section 110: Restriction on surrender of losses etc from alternative finance arrangements
405.This section denies group relief if a deduction is disallowed by section 520 of CTA 2009. It is based on section 411ZA of ICTA.
