CH82284 - Penalties for Inaccuracies: Calculating the penalty: Potential lost revenue Corporation Tax Group Relief or S458 CTA10: Example of PLR where Group Relief reduced due to an overstated loss

You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.

A, B and C are a group of companies. Their returned results are

Company A profits	50,000		less Group Relief 50,000
Company B loss	(75,000)
Company C profits	60,000		less Group Relief 25,000
Aggregate profit	35,000

In this example Company B’s return is carelessly inaccurate. Company B’s true loss is £40,000, so the Group Relief surrenders must be reduced.

Company B must, and does, withdraw its surrenders of £50,000 to Company A and £25,000 to Company C. Company B then surrenders £40,000 to Company A.

The ‘ignore Group Relief’ rule does not prevent a penalty being charged on the inaccurate claims for relief.

The Group Relief claims by both Company A and Company C are inaccurate. It is only necessary for the claims originally made by Company A and Company C to have been inaccurate, not carelessly inaccurate.

Assuming liability at the small companies’ rate, the additional tax due and payable as a result of putting right the inaccuracy is as follows.

A Ltd	Correct	Original	Additional
Trading income	50,000	50,000	0
Less Group Relief	40,000	50,000	-10,000
Profits chargeable to CT	10,000	0	10,000
Tax at small companies’ rate (say 21%)	2,100		2,100
C Ltd	Correct	Original	Additional
Trading income	60,000	60,000	0
Less Group Relief	0	25,000	-25,000
Profits chargeable to CT	60,000	35,000	25,000
Tax at small companies’ rate (say 21%)	12,600	7,350	5,250

The PLR for Company B’s penalty is calculated by reference to the additional amount of tax payable by Companies A and C, taking into account the reduced amount of Group Relief available, as follows.

Additional tax payable by Company A	2,100
Additional tax payable by Company C	5,250
Total PLR for Company B	7,350