No group relief?
If you created a group of companies each owning 100% of the shares, this article is probably not for you! This article focuses on the basics of a group relief more commonly known as consortium relief.
What is a consortium-owned company?
• A trading company where at least 75% of its share capital is owned by more than one company, each company owning between 5% – 74% of its shares.
• If a consortium-owned company is itself a holding company owning at least 90% of the shares in a trading subsidiary, both companies can also form part of the consortium.
If a consortium member is part of a group e.g. a company that owns 10% of the shares in a consortium-owned company, is owned 75% or more by another company; this becomes a link company and can extend the relief into that group.
How much can be claimed?
• D generates trading losses of £280,000 for the year ended 31/12/2019.
• A has pre-2017 trading losses brought forward, which clears its 2019 trading profits.
• B produces a profit of £370,000 for the year to 31/12/2019.
• C’s results to 31/12/2019 are £20,000.
A = no claim.
B = D can surrender £84,000 of losses.
C = D can surrender £20,000 of losses.
A, B, & C cannot surrender losses between themselves.
• If the year-ends of the consortium members are not the same, further restrictions apply to the loss surrenders.
• The introduction of relieving losses brought forward from 1st April 2017, adds further complexity to consortium claims.
• All members of the consortium must agree to any loss surrender or claim by the consortium- owned company.
• It is generally good practice for the claimant company to pay for the losses surrendered, at the prevailing tax rate e.g. £10,000 losses = payment of £1,900.
• Where the surrendering consortium-owned company does not have sufficient distributable reserves, non-payment for those losses may be deemed an illegal distribution under company law.
• Companies whose trading activity is dealing in shares cannot participate in this relief.
• Anti-avoidance provisions can preclude claims; several cases have been taken to the tax tribunal.
• If you are creating a new consortium, make sure you involve an experienced corporate solicitor to draft a comprehensive set of Articles and Shareholders’ Agreement, the terms should be reviewed by a tax professional if you would like to ensure the clauses do not fall foul of the anti-avoidance provisions.
As with all things with tax in its title, there is more complexity behind the above, but it is certainly a relief not to be forgotten!