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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Groups: group relief : available total profits

CTA10/S137

CTA10/S137 provides that the group relief that a company may be allowed must not exceed the amount of the claimant company’s total profits actually arising in the accounting period in accordance with CTA10/S4(2).

This means total profits after any relief actually claimed or automatically off-set under the Taxes Acts such as:

  • for past losses or other amounts brought forward from previous periods (including those treated as of the current period),
  • any relief for UK property business losses of the same accounting period under CTA10/S62(3),
  • any relief for non-trading loan relationship deficits of the same accounting period under CTA09/S459(1)(a),
  • any management expenses of the same period under CTA09/S1219(1)
  • any non-trading losses on intangibles under CTA09/S753, or
  • qualifying charitable donations under CTA10/S189.

This list is not exhaustive.

The total profits must also be reduced by the following, regardless of whether such relief is actually claimed:

  • any relief available to the company for a loss in trade in the same accounting period under CTA10/S37(3)(a),
  • any relief available to the company for an excess of capital allowances in the same accounting period under CAA01/S260(3)(a).

The amount of the claimant company’s total profits is specifically not reduced by any relief derived from a subsequent period, including:

  • relief under CTA10/S37(3)(b) for a trading loss of a later accounting period,
  • relief under CAA01/S260(3)(b) for an excess of capital allowances of a later period, or
  • relief under CTA09/S459(1)(b) (or in the case of an insurance company CTA09/S389) for a non-trading loan relationship deficit of a later accounting period.

A group relief claim may be further restricted where there is:

  • more than one claimant in respect of the same loss or other amount, or
  • more than one company surrendering a loss or other amount to the same claimant (CTA10/Ss138-142; CTM80210 onwards).

Subject to such a restriction, the effective limit of each claim is the lower of:

  • the surrendering company’s surrenderable amounts for the accounting period, and
  • the claimant company’s available total profits as reduced by other reliefs for the same and earlier accounting periods.

Example

Company M is a claimant company for group relief purposes, and wants to claim group relief from its parent company for the year ended 31 July 2011.  Company M’s accounts for the year ended 31 July 2011 show the following:

Trading loss (£50,000)
   
Non-trading loan relationship income £100,000
Chargeable gains £75,000
Chargeable losses brought forward (£50,000)
Charitable donations paid (£2,000)

 

The company decides not to claim relief for the trading loss under CTA10/S37.  At this point the profits for 2011 are £123,000, as follows.

Trading income   Nil
     
Non-trading loan relationship income   £100,000
Chargeable gains £75,000  
Losses brought forward (£50,000) £25,000
    £125,000
Charitable donations   (£2,000)
Profit   £123,000

The group relief, however, that Company M claims for the year ended 31 July 2011 cannot exceed £73,000.  This is because its maximum group relief claim is reduced by the trading loss of £50,000, even though the company does not claim relief for the loss under CTA/S37(3)(a).

So Company M cannot claim group relief of £123,000.  Its claim is limited to £73,000 (or the surrendering company’s surrenderable amount for the corresponding period, whichever is smaller).

Company M’s accounts for the year ended 31 July 2012 show a trading loss of £35,000, and the company claims under CTA10/S37(3)(b) for this amount to be set off against the profits for the accounting period ended 31 July 2011.  So the company’s profits for the accounting period ended 31 July 2011 become £88,000, as follows:

Trading income   Nil
     
Non-trading loan relationship income    £100,000
Chargeable gains  £75,000  
Losses brought forward (£50,000)  £  25,000
Losses carried back from accounts y/e 31 July 2012   (£  35,000)
     £  90,000
Charitable donations   (£   2,000)
Profit    £  88,000

The maximum group relief that Company M can claim for the year ended 31 July 2011 remains at £73,000.  This is because its maximum group relief claim is not affected by the carry-back of losses under CTA10/S37(3)(b).  The maximum group relief claim is still reduced by the trading loss of the year of £50,000, even though the company does not claim relief for the loss under CTA10/S37(3)(a).  So Company M’s available total profits are still limited to £73,000.  This amount will be compared to the amount available for surrender (see CTM80215).