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HMRC internal manual

Company Taxation Manual

From
HM Revenue & Customs
Updated
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Shadow ACT: utilisation of: companies leaving and joining a group

Where the transferring and recipient companies were not members of the same group throughout one of the relevant accounting periods, the capacity of the recipient company for that accounting period is:

  • proportionately reduced by reference to the part of the period during which they were not both members of the group, and
  • further reduced by any prior attribution to the period when they were both members of the group.

When the parent company fails to make an allocation, an officer of the Board may make one. If the parent company subsequently makes an allocation, the officer’s allocationis treated as if it had not been made.

A company is not entitled to set unrelieved surplus ACT against its liability until the surplus shadow ACT of the other group members has been allocated.

Example

A parent company, P, with unrelieved surplus ACT of £50,000 has CT profits of £100,000 for the twelve month accounting period ended 31.12.06. It pays a dividend of £250,000 generating shadow ACT of £50,000. The £20,000 capacity of the accounting period is all used so the company cannot use any of its unrelieved surplus ACT. The company now has surplus shadow ACT of £30,000. No unrelieved surplus ACT was used in any accounting period of the company ended in the 24 month period leading up to 31.12.06. The surplus shadow ACT must be allocated to subsidiary companies before any is carried forward.

P has three subsidiaries, X, Y & Z. The subsidiary companies have the same accounting periods as the parent but Z did not become a member of the group until 1.07.06.

X has CT profits of £12,000, Y has CT profits of £20,000, Z has CT profits of £100,000.

The surplus shadow ACT is allocated up to the maximum capacity as follows:

X - 20% x £12,000 = £2,400.

Y - 20% x £20,000 = £4,000.

Z - 20% x £50,000 (50% of £100,000) = £10,000.

It is also necessary to look at the capacity of other accounting periods ending in the 24 months to 31.12.06.

X has no capacity but Y has capacity to absorb a further £2,000. The total allocated is £18,400 so P must carry £11,600 forward.