CTM80175 - Groups: group relief: arrangements disqualifying relief

ICTA88/S410 (1)

Under Section 410 (1) two companies which would otherwise be treated as members of the same group are not treated in this way, if both the conditions in ICTA88/S410 (1)(a) and (b) apply. So, if both conditions apply, the companies are disqualified from surrendering and claiming group relief.

ICTA88/S410 (1)(a)

The condition is that one of the two companies must have trading losses or other amounts, which would be available for surrender for group relief purposes.

ICTA88/S410 (1)(b)

The condition is that arrangements exist 'by virtue of which' certain situations may come about. Those situations are set out in ICTA88/S410 (1)(b)(i) to (iii).

The situation in ICTA88/S410 (1)(b)(i) is that one of the companies (or a successor, as defined in CTM80180) could:

• cease to be a member of the same group as the other,

and

• become a member of the same group as a third company (as defined in CTM80180).

The situation in ICTA88/S410 (1)(b)(ii) is that:

• any person has or could obtain, or
• any persons together have or could obtain,

control of one of the companies but not of the other. There is guidance on 'control' in CTM80170.

The situation in ICTA88/S410 (1)(b)(iii) is that a third company could begin to carry on the whole or part of a trade which, at any time in that accounting period, is carried on by one of the companies. The third company could do so either as a:

• successor of that company, or
• successor of another company that is not a third company but which, at some time during or after the end of that accounting period, has begun to carry on the whole or part of that trade.

The use of:

• the phrase 'by virtue of which' in relation to arrangements, and
• the word 'could' in relation to certain results,

point to the existence of arrangements which, if they were put into effect, would have one or other of those results. It is not necessary that there should be any present intention to put the arrangements into effect (see Irving v Tesco Stores (Holdings) Ltd 58TC1). The fact that the arrangements could only be given effect to if two or more parties agreed to act jointly does not affect the position.

There is guidance at CTM80185 on 'enabling' arrangements. These are arrangements which confer rights which are not necessarily intended to be exercised immediately but which are available to be exercised at some future date to suit the convenience of the parties.

There is guidance at CTM80190 on 'direct' arrangements. These represent a stage in the process of negotiating an intended transaction.

The terms 'enabling' arrangements and 'direct' arrangements are used for identification only. They have no precise meaning in terms of the legislation and arrangements should not be distinguished in this way in correspondence with companies or their advisers.