Abolition of cross-border group relief
Published 27 October 2021
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This publication is available at https://www.gov.uk/government/publications/abolition-of-cross-border-group-relief/abolition-of-cross-border-group-relief
Who is likely to be affected
UK groups with subsidiary companies established in the European Economic Area (EEA) which incur foreign losses that are definitive, and EEA-resident companies that have incurred losses when trading in the UK through a UK Permanent Establishment (PE).
General description of the measure
This measure repeals legislation that permits UK companies in certain circumstances to claim group relief for losses incurred in the EEA.
The measure also amends legislation that limits the amount of losses that an EEA resident company trading in the UK through a UK PE can surrender as group relief to align the rules for EEA-resident companies with companies resident elsewhere in the world.
Policy objective
Following the UK’s exit from the European Union (EU), the government is bringing the group relief rules relating to EEA-resident companies into line with those for non-UK companies resident elsewhere in the world.
Claims involving companies established in the EEA currently are subject to more favourable rules in the UK relating to relief for non-UK losses and losses incurred by a UK PE of a foreign company. These rules were introduced under the UK’s obligations as a Member State of the EU.
Having now left the EU the UK is no longer required to maintain these rules. It would be inconsistent to treat groups with EEA-resident companies more favourably than those with companies resident elsewhere in the world. Therefore, this measure removes this inequality by aligning the group relief rules for all non-UK companies.
The changes to legislation made by this measure broadly restore the group relief rules to what they were before separate rules were introduced for EEA-resident companies in line with EU law.
Background to the measure
The government announced this measure at Autumn Budget 2021 following the UK’s exit from the EU and the end of the implementation period on 31 December 2020.
Detailed proposal
Operative date
This measure will have effect for company accounting periods beginning on or after 27 October 2021. Transitional arrangements will apply for accounting periods which straddle this date.
Current law
The current law in relation to surrender of losses from non-UK resident companies established in the EEA is contained in Chapter 3 of Part 5 of Corporation Tax Act (CTA) 2010. This provides that in specific circumstances, EEA companies can surrender losses as group relief to UK companies.
For non-UK resident companies trading through a UK PE, the current law is included in section 107 of CTA 2010 for losses of a current period, and section 188BI of CTA 2010 for losses brought forward from an earlier period. A company established in the EEA can only surrender losses of its UK PE if those losses have not been actually deducted from non-UK profits of any person. Any other non-UK resident company can only surrender losses of a UK PE if it is not possible for those losses to be deducted from non-UK profits of any person for any period.
Proposed revisions
Legislation will be introduced in the Autumn Finance Bill 2021-22 to repeal Chapter 3 of Part 5 of CTA 2010 and make consequential amendments to other sections from 27 October 2021.
Sections 107 and 188BI of CTA 2010 will be amended to remove the separate rules for EEA-resident companies so that all non-UK resident companies can only surrender as group relief losses of a UK PE if it is not possible for the loss to be deducted from non-UK profits of any person for any period.
These changes will apply for accounting periods beginning on or after 27 October 2021, and where a company’s accounting period straddles this date, it will be deemed as separate accounting periods for the purpose of applying these changes.
Summary of impacts
Exchequer impact (£m)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| negligible | +5 | +5 | +5 | +5 | +5 |
These figures are set out in Table 5.1 of Autumn Budget 2021 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2021.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.
Impact on individuals, households and families
There is expected to be no impact on individuals as this measure only affects businesses.
This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that this measure will impact on groups sharing protected characteristics, as it only affects companies.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on fewer than 100 businesses that pay Corporation Tax and are members of groups which have loss-making subsidiaries established in the EEA which fulfil the current requirements for surrendering their losses as group relief.
This measure is repealing legislation and reverting to prior rules. One-off costs will include familiarisation with the change. There are not expected to be any continuing costs.
Customer experience is expected to remain broadly the same as the change doesn’t change any processes or tax admin obligations.
This measure is expected to have no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
The additional costs or savings for HMRC in implementing the proposed revisions set out in this measure are anticipated to be negligible, as there are no IT or system changes to be made and very few claims are currently received.
Guidance will be updated to reflect the changes made.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Hannah Cox on Telephone: 03000 544498 or email: hannah.cox@hmrc.gov.uk or Eva Upali on Telephone: 03000 542465 or email: eva.upali@hmrc.gov.uk.