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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Shadow ACT: utilisation of: allocation of surplus within groups

SI1999/358, Reg. 13

ICTA88/S240 left the parent company to choose whether to surrender ACT to a subsidiary. If that approach had been followed for shadow ACT, groups could have been expected to make distributions out of group members with no unrelieved surplus ACT. Those with unrelieved surplus ACT would have able to make full use of their capacity and reduce the surplus at a much faster rate than expected.

Regulation 13, therefore, obliges the parent company to allocate any surplus shadow ACT to another member or other members of the group up to the limit of their capacity.

Where the surplus is insufficient to exhaust the capacity of all the potential recipients, the parent company determines the recipient companies and the amount allocated to each.

Where the amount available exceeds the amount that can be utilised by all the potential recipients, the parent company must allocate to each an amount equal to its capacity.

Where there is more than one company in the group with surplus shadow ACT, the parent company decides the order in which the amounts allocated to a company are to be set-off and that order has to be followed on any subsequent reallocation. The effect is that, if the amount available exceeds the group’s capacity, the parent company determines which company or companies will carry forward a surplus.

A company could be a member of more than one group with members with surplus shadow ACT. The amount that can be allocated to the company by the parent companies cannot exceed its capacity. In determining the maximum amount that can be allocated, the allocations are to be considered in the order in which they are made.

A group member’s capacity for each accounting period is determined in the normal way. The maximum amount that can be allocated to it is that amount less its own shadow ACT to be set against its liabilities for each of the relevant accounting periods. This amount is reduced where those accounting periods include the first or last accounting period in which the transferring and recipient companies were members of the same group. The capacity for that accounting period is proportionately reduced by reference to the part of the period during which the two companies were not members of the same group.

The relevant accounting periods are those:

  • during which the transferring and recipient companies were members of the same group, and which are one of the following:
    • an accounting period beginning and ending on the same dates, or contained within, the accounting period of the transferring company,
    • an accounting period beginning before, but ending in, the transferring company’s accounting period,
    • an accounting period beginning in, but ending after, the transferring company’s accounting period,
    • any further period (whether the whole or part of an accounting period) beginning twenty four months or less prior to the end of the transferring company’s accounting period.

The allocation must follow that order.

Any remaining surplus is allocated to any other group member or set-off against any controlled foreign companies liability of the company or another group member. Any amount that cannot be used in any of those ways remains with the company that generated it. It is carried forward and treated as if it were shadow ACT paid in the next accounting period.