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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Groups: group relief: special rules that apply to “relevant amounts”

CTA10/S105

CTA10/S105 is a special rule that only applies to ‘relevant amounts’.  These are:

  • qualifying charitable donations;
  • a UK property business loss;
  • management expenses; and
  • a non-trading loss on intangible fixed assets.

The relevant amounts do not include the main reliefs (trading losses, excess capital allowances, and non-trading loan relationship deficits).  The main reliefs may be surrendered even if the surrendering company has profits against which those main reliefs may be set – CTM80110.  Conversely, the surrendering company can only surrender the ‘relevant amounts’ to the extent that they could not be utilised by that company itself, even if the company chooses not to do so.

Only the balance of the total of all relevant amounts left above the ‘profit related threshold’ (or ‘gross profit’ for periods ending before 20 March 2013) can be surrendered, taking into account that they are deemed to be surrendered in a specific order (see CTM80143).

Situations where the surrender period ends before 20 March 2013

Relevant amounts are available for surrender only to the extent that they cannot be deducted from the surrendering company’s own gross profits – CTA10/S105(2) and (3).  Gross profits are defined in CTA10/S105(5); the surrendering company’s gross profits for the surrender period are its profits for that period ignoring:

a. trading losses, excess capital allowances, non-trading deficits on loan relationships, UK property business losses, management expenses, qualifying charitable donations, and non-trading losses on intangible fixed assets of the period,

b. any loss, allowance or any other amount from another accounting period (see below about allowable capital losses from another accounting period), and

c. any management expenses or UK property business loss brought forward from another accounting period and treated as an expense of management of the period.

Situations where the surrender period ends on or after 20 March 2013

Relevant amounts are available for surrender only to the extent that they exceed the surrendering company’s “profit-related threshold”.

‘Profit-related threshold’ is defined in CTA10/S105(3A); and is the sum of the surrendering company’s gross profits for the surrender period and certain apportionments of the chargeable profits of Controlled Foreign Companies (‘CFCs’) within Part 9A of TIOPA10 (see below).

‘Gross Profits’ are defined under CTA10/S105(5); the surrendering company’s gross profits for the surrender period are its profits for that period ignoring:

a. trading losses, excess capital allowances, non-trading deficits on loan relationships, UK property business losses, management expenses and non-trading losses on intangible fixed assets of the period,

b. any loss, allowance or any other amount from another accounting period (see below about allowable capital losses from another accounting period), and

c. any management expenses or UK property business loss brought forward from another accounting period and treated as an expense of management of the period.

If the surrendering company:

  • has a ‘relevant interest’ in a CFC under Chapter 15 of Part 9A TIOPA10,
  • receives an apportionment of the CFC’s profits and creditable tax under Step 3 and
  • is a chargeable company under Step 4 of TIOPA10/S371BC(1),

then the total of the chargeable profits from the CFCs is included in addition to the ‘gross profits’ in calculating the profit-related threshold.

Capital losses

The question of whether allowable capital losses from an earlier accounting period should be ignored when calculating a company’s other profits was considered in the case MEPC Holdings Ltd v Taylor [TL3709].  The case was concerned with an older incarnation of the legislation.  The House of Lords decision was that allowable capital losses were not ‘losses or allowances of any other period’.  Accordingly, they were not to be disregarded when computing the profits of the surrender period.

Although the MEPC case was concerned with the old legislation, we consider that the decision should also be applied to the legislation in CTA10/S105(5).  So allowable capital losses can be deducted when computing the amount of chargeable gains included in profits.

In the case of a subsidiary resident in another European Economic Area territory the conditions at CTM81500 onwards must be met.