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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 qualifying charitable donations

In the year ended 31 December 2012 Company R is a 75% subsidiary of Company G, 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 G    
     
Chargeable gains £800  
Less capital losses brought forward (£800) Nil
Profits & gains from non-trading loan relationships   £3,000
Charitable donations paid wholly for business purposes   (£4,000)
     
Company R    
Trading profits   £1,000
Profits & gains from non-trading loan relationships   £500
Qualifying charitable donations paid   (£200)

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

  • Company G’s excess of qualifying charitable donations (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 R’s ‘available total profits’ as reduced by other reliefs under CTA10/S137 (CTM80400).

Company G’s excess of qualifying charitable donations over the gross profits for the accounting period is £1,000.  Under CTA10/S105(5) the total profits are calculated without taking into account losses of any other period.  Normally then, for this purpose, the chargeable gains of £800 would not be reduced by the £800 capital losses brought forward.  Following MEPC Holdings Limited v. Taylor, however, capital losses are not losses or allowances of any other period, so will be taken into account for calculating G’s surrenderable amounts (see the closing paragraphs of CTM80142).

Calculation of Company G’s excess qualifying charitable donations:

Qualifying charitable donations   £4,000
     
Chargeable gains (chargeable gains £800 less capital losses brought forward £800) Nil  
Profits & gains from non-trading loan relationships   (£3,000)
Excess qualifying charitable donations   £1,000

Company R’s total profit as reduced by other reliefs is £1,300, calculated as follows.

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

So the group relief is limited to the smaller of £1,000 and £1,300, that is £1,000.

The CT computations for the accounting period to 31 December 2012 are as follows.

Company R    
     
Trading income   £1,000
Profits & gains from non-trading loan relationships   £500
    £1,500
Less qualifying charitable donations (£200)  
Less group relief claimed (£1,000) (£1,200)
CT profits   £300
     
Company G    
Chargeable gains £800  
Less capital losses brought forward £800 Nil
Profits & gains from non-trading loan relationships   £3,000
Less qualifying charitable donations   (£3,000)
CT profits   Nil
Company G’s carry forward position at 31 December 2012    
Qualifying charitable donations of accounting period   £4,000
Less allowed in computation (£3,000)  
Surrendered as group relief (£1,000) (£4,000)
Excess qualifying charitable donations to carry forward under CTA09/S1223(2)(b) for an investment business           Nil