CTM80260 - Groups: group relief: apportionment of profit or loss

ICTA88/S403B

Section 403B says that, for the purposes of ICTA88/S403A ( CTM80210 and CTM80215) the total profits of the claimant company and the losses or other amounts of the surrendering company are normally to be apportioned on a time basis.

However, where a time-apportionment would operate unjustly or unreasonably, either the Revenue or the company can use an alternative 'just and reasonable' basis of apportionment.

There is no avoidance motive test, but the alternative 'just and reasonable' basis only applies where time-apportionment works 'unreasonably or unjustly'. You should apply the alternative basis of apportionment in any case where:

• the alternative basis is likely to give significantly different results, and
• the amount of tax at stake is worthwhile.

The following are examples of when you should consider applying the alternative basis:

• There has been a significant change in the pattern of the company's results compared with previous periods. This applies particularly where there have been substantial disposals (of either circulating capital assets, or fixed assets attracting a balancing charge or chargeable gains) which leave the company with a lower level of fixed assets or stock or both at the balance sheet date than in previous years.

• A particular event, such as the acquisition of a major asset on which there are first year or other enhanced capital allowances, or a financial transaction in respect of which there is a loan relationship deficit, falls within or without the period to which profits or losses are to be apportioned.

or

• The company's business is one in which disposals are otherwise large and 'lumpy' (such as property developers, for circulating capital assets, and shipping companies for fixed assets attracting capital gains and balancing charges).

or

• The company's business is both substantial and seasonal.

or

• There is evidence of manipulation of the timing of relevant events within the accounting period.

See CTM80265 about apportionment based on management accounts and CTM80270 about apportioned amounts not exceeding the total loss or other surrenderable amount.