CTM80150 - Groups: group relief: companies affected

ICTA88/S402 (2) (2A), (3A) and (3B), ICTA88/S413 (5)

Up to 1 April 2006 both the claimant and surrendering companies must be both:

• within the charge to CT, that is they must:

• be resident in the UK, or
• if not resident in the UK, carry on a trade in the UK through a permanent establishment (see CTM80305 onwards for guidance on group relief claims and surrenders by UK permanent establishments ),

1. 1. and

• members of the same group.

Prior to 1 April 2000, the rule in the first bullet was that the companies had to be resident in the UK. For transitional provisions where an accounting period straddles 1 April 2000 see CTM80370.

As from 1 April 2006, if certain restrictive conditions are satisfied, it is possible for a 75% subsidiary resident in a European Economic Area territory to surrender its losses as group relief, (CTM81500 onwards).

For companies to be members of the same group:

• one company must be a 75% subsidiary of the other, or
• both must be 75% subsidiaries of a third company.

Prior to 1 April 2000, the rule was that all the companies forming a group relationship had to be resident in the UK. For accounting periods ending on or after 1 April 2000 group relationships can be formed by reference to companies resident anywhere in the world.

See press release PR27/99 for group relationships established by reference to companies resident in other Member States of the European Union or the European Economic Area.

The definition of ‘75% subsidiary’ is in ICTA88/S838 (1).

Registered industrial and provident societies can be subsidiaries for this purpose, as well as owners of subsidiaries.

In deciding whether a company is a ‘75%’, shareholdings owned directly or indirectly in companies whose shares are held on trading account, for example by a dealer cannot be taken into account.

In addition the following provisions must be satisfied for group relief purposes:

• ICTA88/S413 (7) - (10) and ICTA88/SCH18,
• ICTA88/S410.

ICTA88/S413 (7) to (10) and ICTA88/SCH18 extend the qualifying tests to include not only the appropriate percentage of the ordinary share capital, but in addition the beneficial entitlement to profits and assets - see CTM80155 onwards.

Under ICTA88/S410 two companies are not treated as belonging to the same group if there are arrangements by which, broadly:

• one of the two companies could be switched to another group, or
• the two companies are, or could be, under different control, or
• assets comprised in a trade could be transferred out of the group by one of the two companies without attracting a balancing adjustment.

You will find detailed guidance on ICTA88/S410 at CTM80165 onwards.