Corporation tax: the effect of a group structure: formula sheet

Key formulas

Adjusted lower limit

£50,000 ÷ number of associated companies (including the company itself)

Multiply by months ÷ 12 for a short accounting period.

Adjusted upper limit

£250,000 ÷ number of associated companies (including the company itself)

Time-apportion for a short accounting period.

Marginal relief

(Upper limit – Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits

Use adjusted limits. Augmented profits = taxable total profits plus exempt distributions received from non-group companies. Applies when augmented profits lie between the limits.

Corporation tax rates

Small profits rate 19%; main rate 25%

Financial years 2023, 2024 and 2025.

Quarterly instalment profit threshold

£1,500,000 ÷ number of associated companies

Apply the same divisor. Time-apportion for short periods.

Association test (51%)

Control through more than 50% of ordinary share capital or voting power, directly or through a common controller

Used for the limits.

Group relief test (75%)

75% subsidiary relationship, directly or indirectly

Used for group relief. It is different from the association test.

75% group test

Holds ≥ 75% of ordinary share capital, profits entitlement and assets on winding up (directly or indirectly)

Work through the chain for indirect holdings. A parent with 80% of B, and B with 80% of C, holds only 64% of C and is not in a 75% group with it.

Group relief limit

Relief = lower of (loss available for surrender) and (claimant's profits available)

The claimant cannot create or increase a loss. The surrendering company need not surrender the whole loss.

Time apportionment (non-coterminous periods)

Overlap loss = loss × overlap months ÷ months in loss period; overlap profit = profit × overlap months ÷ months in claimant period

Apportion to the nearest month, as the exam supplementary instructions state. Relief is the lower of the two overlap figures.

Consortium relief limit (claim by member)

Relief = lowest of (consortium company's loss available × member's %), and (member's profits available)

The percentage applies to the consortium company's loss. That loss is also reduced by any other relief claimed against it. Where periods differ, time-apportion first.

Consortium relief limit (member's loss surrendered to the consortium company)

Relief = lowest of (member's loss available), and (consortium company's profits available × member's %)

The percentage applies to the consortium company's profits, not to the member's own loss. Where periods differ, time-apportion first.

Consortium condition

Company owned ≥ 75% by companies, each holding ≥ 5% of ordinary share capital

The company must be a trading company, or a holding company with trading subsidiaries, and must not be a 75% subsidiary of any company. A link company that is in both a group and a consortium faces extra restrictions.

Corporation tax rates for the exam (FY2025)

Small profits rate 19%; main rate 25%; lower limit £50,000; upper limit £250,000; marginal relief = (upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits

Limits are divided by (1 + number of associated companies). Group relief reduces taxable total profits, so check where the claimant's profits sit before and after the claim.

Gains group test

Principal company + 75% subsidiaries (direct or indirect) + effective interest of more than 50% in the lower companies

Group relief uses the same 75% subsidiary and more than 50% effective interest test, but it also has its own extra rules, such as consortium relief. Apply the rules of the regime the question is about.

Intra-group transfer

Deemed proceeds = transferor's original cost, so gain = 0 and loss = 0

The transferee inherits the transferor's base cost and the gain is deferred. Indexation allowance was frozen at December 2017, so it matters only for assets held at that date.

Joint election

Whole or a fraction of a gain or loss on the disposing company's external disposal may be treated as accruing to another group company

The disposing company and the company receiving the gain or loss must elect jointly. The election must be made within two years of the end of the disposing company's accounting period.

Degrouping charge

Market value at date of intra-group transfer − base cost (as at that date) = degrouping gain

The company is treated as selling and immediately reacquiring the asset at market value on the date it acquired it. Applies if the company leaves within six years and still owns the asset.

Treatment of the charge

Adjusted share proceeds = share sale proceeds + degrouping gain (or minus degrouping loss)

The seller of the shares is taxed or exempt under the substantial shareholding exemption.

Rollover relief across a group

Gain immediately chargeable = lower of (gain, proceeds not reinvested). Gain deferred = gain − gain immediately chargeable

The deferred gain reduces the base cost of the new asset. The group is treated as one for reinvestment, but the asset must be a qualifying business asset used in the trade.

Corporation tax rates

Small profits rate 19% and main rate 25%. Marginal relief applies between £50,000 and £250,000.

Both come from the tax tables. Use the main rate on gains for companies above £250,000.

SDLT on non-residential property

0% to £150,000; 2% on £150,001 to £250,000; 5% above £250,000

Applied slice by slice (tax table). Example: price £400,000 = £2,000 + £7,500 = £9,500.

Stamp duty on shares

0.5% × consideration

Rate from the tax tables. Intra-group transfers can be exempt if the group relationship is met and there are no disqualifying arrangements.

Group relationship for stamp taxes

One company is a 75% subsidiary of the other (or both are 75% subsidiaries of a third), based on ordinary share capital

General UK law. Learn this test. It is not in the tax tables.

SDLT group relief clawback

Buyer leaves the seller's group within 3 years of the transfer while holding the property → relief withdrawn

General UK law, not in the tax tables. SDLT is charged on the market value at the date the buyer leaves the group, not at the date of the original transfer.

VAT group

One taxable person; intra-group supplies ignored

Bodies corporate under common control apply to HMRC. Group taxable turnover is tested against the £90,000 registration limit. Standard rate 20% and the limit are from the tax tables. Members are jointly and severally liable.

Normal due date

Due date = 9 months + 1 day after the end of the accounting period

Applies to companies that are not large. Payment is one lump sum.

Large company threshold

£1,500,000 ÷ (1 + number of associated companies)

Reduce proportionately for a short accounting period. Compare with profits (taxable total profits plus dividends from non-group companies).

Very large company threshold

£20,000,000 ÷ (1 + number of associated companies)

Not in the tax tables, so learn it. Instalments are due on the 14th day of months 3, 6, 9 and 12 of the period.

Large company instalment dates

Months 7, 10, 13 and 16 after the start of a 12-month period, each 25% of the liability

Due on the 14th day of the month. The final instalment falls after the end of the period.

Interest on underpaid tax

Tax × 8.50% × months late ÷ 12

Rate given in the tax tables as assumed. Runs from due date to payment date.

Interest on overpaid tax

Tax × 3.50% × months ÷ 12

Rate given in the tax tables as assumed. Interest received is taxable.

Corporation tax rates

Small profits rate 19%; main rate 25%; limits £50,000 and £250,000

Limits are divided by 1 plus the number of associated companies. Marginal relief = (£250,000 − augmented profits) × 3/200 × taxable total profits ÷ augmented profits.

SSE conditions

≥ 10% holding; held 12 months in the previous 6 years; trading test met by the company sold

Gain exempt, loss not allowable. Check the trading test for the company sold, not for the investing company.

BADR

14% on qualifying gains up to £1,000,000 lifetime; then 18% or 24%

Needs 5% of shares and votes, officer or employee, and trading company, for 2 years before disposal.

Stamp duty on shares

0.5% of consideration

Paid by the buyer. Asset sales may instead bring SDLT on land.

Quick revision

• Associated companies share the small profits limits, so each limit is divided by 1 plus the number of associated companies.
• The lower limit is £50,000 and the upper limit is £250,000 for the year, and both are time-apportioned for short periods.
• Small profits rate is 19% and main rate is 25%; marginal relief uses the standard fraction of 3/200.
• Marginal relief = (upper limit − augmented profits) × 3/200 × taxable total profits ÷ augmented profits.
• Check the relationship test first: group relief, gains groups and consortium relief each have their own conditions.
• Group relief is a surrender of current period losses to a claimant company, in matching periods.
• Consortium relief depends on the ownership share, so only that proportion can move.
• A degrouping charge can arise when a company leaves the group holding an asset it received on a no gain, no loss transfer.
• Stamp duty on shares is 0.5%; non-residential SDLT is 0% to £150,000, 2% to £250,000 and 5% above.
• VAT registration limit is £90,000 and deregistration limit is £88,000; a VAT group is treated as one taxable person.
• Quarterly instalments apply to large companies where profits exceed the £1,500,000 threshold, with the threshold also affected by associated companies.
• In a disposal, compare a sale of shares with a sale of assets, and state the tax cost for each side.

Common mistakes

• Dividing the limits by the number of associates and forgetting to count the company itself. Fix: Count every company in the association, including the one you are computing. Two associates means three companies and a divisor of three.
• Using the 75% test to decide association. Fix: For the limits, use control of more than 50%. Use 75% only for group relief and similar group reliefs.
• Treating the group as a 75% group when the indirect holding is under 75%. Fix: Multiply through the chain, and also check profit and asset entitlement, not just shares.
• Ignoring non-coterminous periods and using the full-year loss and profit. Fix: Write down both periods first. Apportion loss and profit to the overlap, and use the lower figure.
• Taxing an intra-group transfer at market value. Fix: Transfer at no gain/no loss at original cost. Tax only arises on a later external sale or on degrouping.
• Assuming group status without testing the holdings through each link. Fix: Apply the 75% subsidiary test through each link and check that the principal company has an effective interest of more than 50% in the lower companies. Group relief uses the same test but has extra rules, such as consortium relief, so do not copy conclusions across without checking.
• Applying the SDLT rates to the whole price instead of slices. Fix: Calculate each band separately: nil to £150,000, 2% on the next £100,000, 5% on the rest.
• Forgetting SDLT clawback when the buyer leaves the group. Fix: Read the scenario for any planned disposal of the buyer within three years and recompute SDLT on the market value when the buyer leaves.
• Using £1,500,000 as the threshold for every company in the group. Fix: Count the companies first. Divide £1,500,000 by 1 plus the number of associated companies, and adjust for short periods.
• Using the wrong interest rate or direction. Fix: Underpaid tax is 8.50% and overpaid tax is 3.50%. Write the rate beside each calculation.

Exam tips

• Draw a quick ownership diagram first. It shows association and 75% groups at a glance.
• Write the adjusted limits clearly. Marks are given for the divisor and the adjusted figures even if later arithmetic slips.
• Read the period length. A short period combined with associates is a favourite trap.
• When asked to advise, state both tests: more than 50% for the limits and 75% for group relief. Keep the two apart.
• Show the marginal relief formula with your numbers. Method marks are available.
• Draw the group structure first. Marks are available for the percentages and the correct conclusion on who is grouped.
• When year ends differ, show the months of overlap explicitly. Markers look for the apportionment.
• Say which claimant gives the best result and why, using the tax rates given in the exam. This earns professional skills marks for commercial awareness.