CTM80142 - Groups: group relief: excess of charges etc. over other profits

ICTA88/S403(3) and ICTA88/S403ZE

Excess charges ( CTM80130), Schedule A losses ( CTM80135), management expenses ( CTM80140) and non-trading losses on intangible fixed assets ( CTM80141) can be surrendered as group relief only to the extent that they exceed the surrendering company's other profits of the accounting period (or in the case of a subsidiary resident in another European Economic Area territory meet the conditions at CTM80500 onwards).

For this purpose a company’s other profits are computed ignoring any:

• trading losses,
• excess capital allowances,
• non-trading deficit on loan relationships,
• charges,
• Schedule A losses,
• management expenses,
• non-trading losses on intangible fixed assets,

for the accounting period concerned, and also ignoring:

• any loss, allowance or any other amount from another accounting period (see below about allowable capital losses from another accounting period),
• any management expenses brought forward from another accounting period under ICTA88/S75 (3), or
• any Schedule A losses brought forward under ICTA88/S392A (2).

For the order of surrender of the various types of amount that can be surrendered as group relief see CTM80143.

The question of whether allowable capital losses from an earlier accounting should be ignored when calculating a company's other profits was considered in the case MEPC Holdings Ltd v Taylor TL3709. The case was concerned with the legislation (old ICTA88/S403 (7) and (8)) which preceded S403ZE. The House of Lords decision was that allowable capital losses were not 'losses or allowances of any other period'. Accordingly, they were not to be disregarded when computing the profits of the accounting period for which the group relief surrender.

Although the MEPC case was concerned with the old legislation, we consider that the decision should also be applied to the new legislation in ICTA88/S403ZE (1)(b)(i). So allowable capital losses can be deducted when computing the amount of chargeable gains included in profits for the purposes of ICTA88/S403 (3).