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HMRC internal manual

International Manual

HM Revenue & Customs
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UK residents with foreign income or gains: dividends: Consolidated tax calculation - joiners and leavers

TIOPA10/S71 requires us to calculate the underlying rate as if all of the companies in the tax consolidation were a single company, provided they are also resident in the territory. If a company leaves the group, that raises the question of how the underlying rate should be calculated for the old and the new groups.

One way of approaching this problem is to remove the leaver from the original consolidation and take its profits and a proportion of the consolidated tax with it. This can be a suitable approach provided that the underlying rate for the original group is not altered by removing the leaver, and the total of dividends specified for any period does not exceed the aggregate relevant profit of the group in that period, taking into account all companies that were in the group at the time. In practice this means that:

  • Where a company that made a profit in a period subsequently leaves or joins a consolidated tax group, that company’s profits and tax should be removed from the original consolidated and added to the new consolidated group, taking with it the appropriate proportion of the consolidated tax. If the company does not join another consolidated tax group, those profits and that proportion of the consolidated tax can be treated as having been earned and paid by the company.
  • Where a loss-making company leaves or joins a consolidate tax group, that company’s loss should be removed from or added to the consolidated profits. No tax should be allocated to the loss.

If the leaver is taken into the new consolidation, this approach blends the leaver’s underlying rate with the underlying rate for the new group. As this facilitates the consolidated calculation for the new tax group, HMRC will normally accept this approximation.

Alternatively, the leaver may be left in the original tax consolidation for periods before it left the group. Therefore its underlying rate for that period remains the same as the rest of the original group and it is not merged with the new group. The total dividend specified for the period must not exceed the aggregate relevant profit for the period (in accordance with TIOPA10/S59) - in particular, if the leaver is a loss-maker, its loss will continue to be taken into account in calculating the aggregate relevant profit for the period.