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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Groups: group relief: example - surrender of excess management expenses

In the year ended 31 December 2012 Company U is a 75% per cent subsidiary of Company V, which is a group holding company.  Both companies make up their accounts to 31 December.  The accounts and computations of the companies for the 12 months accounting period to 31 December 2012 show the following.

Company V  
   
Management expenses disbursed within year (CTA09/S1219 (1)) (£5,000)
Management expenses brought forward (CTA09/S1223) (£500)
UK property business income £800
Profits & gains from non-trading loan relationships £3,000
   
Company U  
Trading profits £1,000
Profits & gains from non-trading loan relationships £500
Qualifying charitable donations paid (£200)

Company U claims group relief from Company V, with the consent of Company V.  Group relief is limited to the smaller of:

  • Company V’s excess of management expenses (the only ‘relevant amounts’) over the ‘gross profits’ for the accounting period (CTM80142 – note this is a period ending before 20 March 2013), and
  • Company U’s ‘available total profits’ as reduced by qualifying charitable donations paid (CTM80400).

Company V’s excess of management expenses over the total profits for the accounting period is £1,200.  Under CTA10/S103 for group relief purposes management expenses do not include amounts carried forward from earlier periods.  So, in this case, the £500 management expenses brought forward from the previous accounting period are disregarded.

Calculation of Company V’s excess management expenses for the purposes of group relief.

Management expenses (disbursed within year)   £5,000
     
UK property business income £800  
Profits & gains from non-trading loan relationships £3,000 £3,800
Excess management expenses   £1,200

Company U’s ‘available total profits’, as reduced by other reliefs, is £1,300, calculated as follows.

Trading profits £1,000
   
Profits & gains from non-trading loan relationships £500
  £1,500
Less qualifying charitable donations paid £200
Total profits as reduced by other reliefs £1,300

So the group relief is limited to the smaller of £1,200 and £1,300, that is £1,200.

Company V’s CT computation for the accounting period to 31 December 2012 is as follows.

UK property business income £800
   
Profits & gains from non-trading loan relationships £3,000
  £3,800
Less management expenses £3,800
CT profits Nil       

Company V’s carry forward position as at 31 December 2012 is as follows.

Management expenses (including amounts brought forward from earlier periods)   £5,500
     
Less allowed in computation (£3,800)  
Surrendered as group relief (£1,200) (£5,000)
Excess management expenses available to carry forward   £500

Company U’s CT computation for the accounting period to 31 December 2012 is as follows.

Trading income   £1,000
     
Profits & gains from non-trading loan relationships   £500
    £1,500
Less qualifying charitable donations (£200)  
Less group relief claimed (£1,200) (£1,400)
CT profits   £100