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Corporation Tax Bill


Corporation Tax Bill
Part 5 — Group relief
Chapter 2 — Surrender of company’s losses etc for an accounting period

56

 

(a)   

allows a company to surrender losses and other amounts, and

(b)   

enables, in certain cases involving groups or consortiums of companies,

other companies to claim corporation tax relief for the losses and other

amounts that are surrendered.

(2)   

The corporation tax relief mentioned in subsection (1) is called “group relief”.

5

(3)   

Chapter 2 allows a company within the charge to corporation tax to surrender

losses and other amounts it has for an accounting period.

(4)   

Chapter 3 allows a non-UK resident company that is resident or carrying on a

trade in the European Economic Area to surrender losses and other amounts it

has for a period.

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(5)   

Chapter 4 sets out how a company may claim group relief in respect of losses

and other amounts surrendered, how group relief is given and limitations on

the amount of group relief to be given on a claim.

(6)   

Chapter 5 explains certain key concepts for the purposes of group relief,

including (in particular) how to determine if a company is a member of a group

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of companies or is a member of, or is owned by, a consortium.

(7)   

Chapter 6 contains provision about persons holding equity in companies and

about distributions of companies’ profits and assets (which is relevant for the

purposes of sections 143(3)(b) and (c) and 144(3)(b) and (c) (in Chapter 4) and

section 151(4)(a) and (b) (in Chapter 5)).

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(8)   

Chapter 7 contains definitions that apply for the purposes of this Part and

miscellaneous provisions.

(9)   

For provision about making claims for group relief, see Part 8 of Schedule 18 to

FA 1998 (which includes provision in paragraph 76 of that Schedule for the

making of assessments or other adjustments if group relief has been given

25

which is, or has become, excessive).

Chapter 2

Surrender of company’s losses etc for an accounting period

Introduction

98      

Overview of Chapter

30

(1)   

This Chapter allows a company to surrender losses and other amounts it has

for an accounting period.

(2)   

Sections 99 to 104 set out the basic provisions about the surrendering of losses

and other amounts.

(3)   

Sections 105 to 110 place restrictions on the surrendering of losses and other

35

amounts.

 
 

Corporation Tax Bill
Part 5 — Group relief
Chapter 2 — Surrender of company’s losses etc for an accounting period

57

 

Basic provisions about surrendering losses and other amounts

99      

Surrendering of losses and other amounts

(1)   

This section applies if a company has one or more of the following for an

accounting period—

(a)   

a trading loss (see section 100),

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(b)   

a capital allowance excess (see section 101),

(c)   

a deficit within Chapter 16 of Part 5 of CTA 2009 (non-trading deficit on

loan relationship),

(d)   

amounts allowable as qualifying charitable donations (see Part 6),

(e)   

a UK property business loss (see section 102),

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(f)   

management expenses (see section 103), and

(g)   

a non-trading loss on intangible fixed assets (see section 104).

(2)   

The company may surrender the losses and other amounts under this Chapter

so far as the losses and other amounts are eligible for corporation tax relief

(apart from this Part).

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(3)   

Subsection (2) applies in relation to losses and other amounts within subsection

(1)(a) to (c) even if the company has other profits in the accounting period

mentioned in subsection (1) from which the losses and other amounts could be

deducted.

(4)   

But so far as losses and other amounts are within subsection (1)(d) to (g),

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subsection (2) is subject to the restriction in section 105.

(5)   

Subsection (2) is also subject to—

(a)   

sections 106 to 110 (which place further restrictions on what the

surrendering company may surrender),

(b)   

sections 432 and 433 (which restrict relief for expenses treated as

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incurred under Chapter 3 or 4 of Part 9), and

(c)   

sections 887 and 888 (which restrict relief in certain cases involving

partnership losses in a business of leasing plant or machinery).

(6)   

Under paragraph 70(1) of Schedule 18 to FA 1998, the company surrenders

losses or other amounts, so far as eligible for surrender under this Chapter, by

30

consenting to one or more claims for group relief in relation to the amounts (see

Requirement 1 in section 130).

(7)   

In this Part, in relation to losses or other amounts within subsection (1) that a

company has for an accounting period—

“the surrenderable amounts” means the losses or other amounts so far as

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eligible for surrender under this Chapter,

“surrendering company” means the company that has the losses or other

amounts, and

“the surrender period” means the accounting period for which the

company has the losses or other amounts.

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100     

Meaning of “trading loss”

(1)   

In section 99(1)(a) “trading loss” means a loss made in a trade in the surrender

period.

(2)   

But it does not include—

 
 

Corporation Tax Bill
Part 5 — Group relief
Chapter 2 — Surrender of company’s losses etc for an accounting period

58

 

(a)   

a loss made in a trade carried on wholly outside the United Kingdom,

or

(b)   

a loss that is not eligible for relief under section 37 as a result of section

44 or 48.

101     

Meaning of “capital allowance excess”

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(1)   

In section 99(1)(b) “capital allowance excess” means an excess of the kind

mentioned in section 260(1) of CAA 2001 for the surrender period.

(2)   

In determining if there is such an excess for the surrender period and, if there

is, its amount, apply section 260(1) of CAA 2001 but subject to subsections (3)

and (4).

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(3)   

Capital allowances brought forward from previous accounting periods are to

be ignored.

(4)   

The reference in section 260(1) of CAA 2001 to a description of the company’s

income is to be read as a reference to that description of income before

deductions for—

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(a)   

losses of any accounting period other than the surrender period, or

(b)   

capital allowances.

102     

Meaning of “UK property business loss”

(1)   

In section 99(1)(e) “UK property business loss” means a loss made in a UK

property business in the surrender period.

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(2)   

But it does not include a loss treated as made in the surrender period as a result

of section 62(5).

103     

Meaning of “management expenses”

(1)   

In section 99(1)(f) “management expenses” means expenses that are deductible

for the surrender period under section 1219 of CTA 2009.

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(2)   

But it does not include—

(a)   

expenses that are deductible for the surrender period as a result of

section 1223 of CTA 2009, or

(b)   

amounts treated as expenses deductible for the surrender period as a

result of section 63 above.

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104     

Meaning of “non-trading loss on intangible fixed assets”

(1)   

In section 99(1)(g) “non-trading loss on intangible fixed assets” is to be read in

accordance with Part 8 of CTA 2009.

(2)   

But so much of such a loss as is made up of an amount carried forward under

section 753(3) of CTA 2009 is excluded from the scope of section 99(1)(g).

35

 
 

Corporation Tax Bill
Part 5 — Group relief
Chapter 2 — Surrender of company’s losses etc for an accounting period

59

 

Restrictions on losses and other amounts that may be surrendered

105     

Restriction on surrender of losses etc within section 99(1)(d) to (g)

(1)   

This section applies if the surrendering company has for the surrender period

losses or other amounts within section 99(1)(d) to (g) (“relevant amounts”) that

are eligible for corporation tax relief (apart from this Part).

5

(2)   

The surrendering company may not surrender any relevant amount under this

Chapter unless the total of the relevant amounts exceeds the surrendering

company’s gross profits of the surrender period.

(3)   

If the total of the relevant amounts does exceed those gross profits—

(a)   

the surrendering company may surrender relevant amounts, but

10

(b)   

the total amount that may be surrendered is limited to the amount of

the excess.

(4)   

If the surrendering company surrenders relevant amounts, the amount

surrendered is treated as consisting of—

(a)   

first, donations within section 99(1)(d),

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(b)   

second, loss within section 99(1)(e),

(c)   

third, expenses within section 99(1)(f), and

(d)   

fourth, loss within section 99(1)(g).

(5)   

For the purposes of this section the surrendering company’s gross profits of the

surrender period are its profits for that period without any of the following—

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(a)   

a deduction in respect of any of the kinds of thing mentioned in section

99(1),

(b)   

a deduction falling to be made in respect of losses, allowances or other

amounts of any other period (whether or not in respect of a kind of

thing so mentioned), and

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(c)   

a deduction falling to be made by virtue of section 63 of this Act or

section 1223(3) of CTA 2009 (other amounts carried forward).

(6)   

This section is subject to section 305 (oil activities: availability of group relief

against ring fence profits).

106     

Restriction on losses etc surrenderable by UK resident

30

(1)   

This section applies if the surrendering company is UK resident.

(2)   

The surrendering company may not surrender a loss or other amount under

this Chapter so far as the loss or other amount—

(a)   

is attributable to a permanent establishment through which the

company carries on a trade outside the United Kingdom (see

35

subsection (3)), and

(b)   

is, or represents, an amount within subsection (5).

(3)   

A loss or other amount is attributable to a permanent establishment of the

surrendering company if (ignoring this section) the amount could be included

in the company’s surrenderable amounts for the surrender period if those

40

amounts were determined—

(a)   

by reference to that establishment alone, and

(b)   

by applying, in relation to that establishment, principles corresponding

in all material respects to those mentioned in subsection (4).

 
 

Corporation Tax Bill
Part 5 — Group relief
Chapter 2 — Surrender of company’s losses etc for an accounting period

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(4)   

The principles are those that would be applied for corporation tax purposes in

determining an equivalent loss or other amount in the case of a permanent

establishment through which a non-UK resident company carries on a trade in

the United Kingdom.

(5)   

An amount is within this subsection if, for the purposes of non-UK tax (see

5

section 187) chargeable under the law of the territory in which the permanent

establishment is situated, the amount is (in any period) deductible from or

otherwise allowable against non-UK profits (see section 108) of a person other

than the surrendering company.

(6)   

Subsection (7) applies for the purposes of subsection (5) if, in order to

10

determine if an amount is deductible or otherwise allowable for the purposes

of non-UK tax chargeable under the law of a territory, it is necessary under that

law to know if the amount (or a corresponding amount) is deductible or

otherwise allowable for tax purposes in the United Kingdom.

(7)   

The amount is to be treated as deductible or otherwise allowable for the

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purposes of the non-UK tax chargeable under the law of the territory

concerned if (and only if) the surrendering company is treated as resident in

that territory for the purposes of the non-UK tax.

107     

Restriction on losses etc surrenderable by non-UK resident

(1)   

This section applies if the surrendering company is a non-UK resident

20

company carrying on a trade in the United Kingdom through a permanent

establishment.

(2)   

The surrendering company may surrender a loss or other amount under this

Chapter only so far as conditions A, B and C are met in relation to the loss or

other amount.

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(3)   

Condition A is that the loss or other amount is attributable to activities of the

surrendering company in respect of which it is within the charge to

corporation tax for the surrender period.

(4)   

Condition B is that the loss or other amount is not attributable to activities of

the surrendering company that are double taxation exempt for the surrender

30

period (see section 186).

(5)   

Condition C is that—

(a)   

the loss or other amount does not correspond to, and is not represented

in, an amount within subsection (6), and

(b)   

no amount brought into account in calculating the loss or other amount

35

corresponds to, or is represented in, an amount within subsection (6).

(6)   

An amount is within this subsection if, for the purposes of non-UK tax

chargeable under the law of a territory, the amount is (in any period)

deductible from or otherwise allowable against non-UK profits of any person.

(7)   

But an amount is not to be taken to be within subsection (6) by reason only that

40

it is—

(a)   

an amount of profits brought into account for the purpose of being

excluded from non-UK profits of the person, or

(b)   

an amount brought into account in calculating an amount of profits

brought into account as mentioned in paragraph (a).

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Corporation Tax Bill
Part 5 — Group relief
Chapter 2 — Surrender of company’s losses etc for an accounting period

61

 

(8)   

Subsection (9) applies for the purposes of subsection (6) if, in order to

determine if an amount is deductible or otherwise allowable for the purposes

of non-UK tax chargeable under the law of a territory, it is necessary under that

law to know if the amount (or a corresponding amount) is deductible or

otherwise allowable for tax purposes in the United Kingdom.

5

(9)   

The amount is to be treated as deductible or otherwise allowable for the

purposes of the non-UK tax chargeable under the law of the territory

concerned.

108     

Meaning of “non-UK profits”

(1)   

In sections 106 and 107 “non-UK profits”, in relation to a person, means—

10

(a)   

amounts within subsection (2), or

(b)   

amounts taken into account in calculating amounts within subsection

(2).

(2)   

Amounts are within this subsection if they—

(a)   

are taken for the purposes of the non-UK tax in question to be the

15

amount of the profits, income or gains on which (after allowing for

deductions) the person is charged with that tax, and

(b)   

are not amounts corresponding to, and are not represented in, the total

profits of any person of any accounting period.

(3)   

For the purposes of subsection (2)(b) amounts that arise from activities of a

20

non-UK resident company that are double taxation exempt for an accounting

period (see section 186) are excluded from the company’s total profits of that

period.

109     

Restriction on losses etc surrenderable by dual resident

(1)   

This section applies if in the surrender period the surrendering company is UK

25

resident and is also within a charge to non-UK tax under the law of a territory

because—

(a)   

it derives its status as a company from that law,

(b)   

its place of management is in that territory, or

(c)   

it is for some other reason treated under that law as resident in that

30

territory for the purposes of that tax.

(2)   

If condition A, B or C is met, the surrendering company may not surrender any

losses or other amounts under this Chapter.

(3)   

Condition A is that the surrendering company is not a trading company

throughout the surrender period.

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(4)   

Condition B is that in the surrender period the surrendering company carries

on a trade of such a description that the company’s main function, or one of its

main functions, consists of one or more of the following activities.

Activity 1

   

Acquiring and holding shares, securities or investments of any other kind

40

(whether directly or indirectly).

 
 

Corporation Tax Bill
Part 5 — Group relief
Chapter 3 — Surrenders made by non-UK resident company resident or trading in the EEA

62

 

Activity 2

   

Making, under loan relationships, payments in relation to which debits fall to

be brought into account for the purposes of Part 5 of CTA 2009.

Activity 3

   

Making payments which are qualifying charitable donations.

5

Activity 4

   

Making payments similar to those within Activity 3 but which are deductible

in calculating the profits of the surrendering company for corporation tax

purposes.

Activity 5

10

   

Obtaining funds for the purposes of, or otherwise in connection with, any of

Activities 1 to 4.

(5)   

Condition C is that in the surrender period the surrendering company carries

on one or more of Activities 1 to 5—

(a)   

to an extent that does not appear to be justified by any trade which it

15

carries on, or

(b)   

for a purpose that does not appear to be appropriate to any such trade.

110     

Restriction on surrender of losses etc from alternative finance arrangements

(1)   

This section applies if the surrendering company is prevented from obtaining

a deduction in respect of an amount by section 520 of CTA 2009 (provision not

20

at arm’s length: non-deductibility of relevant return).

(2)   

The amount may not be surrendered under this Chapter.

Chapter 3

Surrenders made by non-UK resident company resident or trading in the EEA

Introduction

25

111     

Overview of Chapter

(1)   

This Chapter allows a non-UK resident company that is resident or carrying on

a trade in the European Economic Area to surrender losses and other amounts

it has for a period.

(2)   

Section 113 sets out the basic provisions about the surrendering of losses and

30

other amounts.

(3)   

Sections 114 to 121 set out conditions that must be met if losses and other

amounts are to be surrendered (see Step 2 in section 113(2)).

(4)   

Sections 122 to 128 set out other rules, assumptions and exclusions (see Steps 3

and 5 in section 113(2)).

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112     

EEA related definitions

In this Chapter—

 
 

 
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