ACCA Applied Skills · Taxation (UK)

The Effect of a Group Corporate Structure for Corporation Tax Purposes

A group structure changes corporation tax in several ways. Associated companies share the £50,000 and £250,000 limits. Companies in a 75% group can surrender current period losses, transfer assets with no gain or loss, and share rollover relief. The £1,500,000 instalment threshold is divided by the number of associated companies, whether or not they form a 75% group.

What this chapter covers

This chapter shows what happens to corporation tax when companies are linked by ownership. It is a set of rules layered on top of the single-company corporation tax you already know. The main ideas are associated companies, group relief for losses, chargeable gains groups, rollover relief and payment of tax.

The first step in every question is the same. Draw the structure and mark the percentage holdings. Then decide which test applies. Associated companies are based on control. Group relief and gains groups need a 75% relationship. Consortium relief uses different shareholding conditions. Most errors start with the wrong test.

The chapter connects to much of the paper. It builds on the computation of taxable total profits, loss relief, chargeable gains and rollover relief for a single company. It also links to payment dates and VAT groups. Expect it in Section B cases, where each question tests one rule, and in Section C, where a group scenario needs a clear written computation.

Groups appear in corporation tax questions in every style. In Section A and B you get quick, all-or-nothing questions, such as the limits for a company with associates or whether a loss can be surrendered. In Section C you may need to choose the best use of a loss across several companies and show your workings. The rules are fairly mechanical once you know the tests, so careful study turns directly into marks. The marginal relief formula and the rates are given in the exam, so your time goes on applying the rules, not memorising numbers.

The effect of a group corporate structure for corporation tax purposes: topics in the order to study them

1Associated Companies and Corporation Tax LimitsIt builds straight on single-company corporation tax and teaches you to read a group structure and divide the limits.
2Group Relief for Trading LossesIt introduces the 75% group test and the rules for surrendering current period losses, which the later topics reuse.
3Chargeable Gains Groups and TransfersIt applies the group idea to gains, with no gain or loss transfers and the election to move a gain or loss between companies.
4Rollover Relief for GroupsIt only makes sense once you know how a gains group works, because the group is treated as one for replacement of assets.
5Group Payment of Tax and Quarterly InstalmentsIt needs the associated company count from the first topic, which applies whether or not the companies form a 75% group, to find whether a company is large.
6Groups and Overseas or Consortium RelationshipsIt covers the exceptions and the extra conditions, so it is best left until the main rules are secure.

How to prepare The effect of a group corporate structure for corporation tax purposes

Learn the tests first, then practise drawing structures. Group questions are won by method, not by memory alone.

Write a one-line test for each relationship: associated (control), group relief (75%), gains group (75%) and consortium. Check these against your notes until you can recite them.
Practise drawing group diagrams from short descriptions. Mark direct and indirect holdings and label each company as in or out for each test.
Work through associated company limit questions. Divide £50,000 and £250,000 by the number of associated companies, including the company itself, and adjust for short accounting periods.
Do loss questions with a table: each company's profit, the loss available, and the maximum claim. Remember the claim cannot exceed the claimant's profit, and check time apportionment where year ends differ.
Practise gains questions in two stages: transfers inside the group at no gain or no loss, and the gain on the final sale outside the group. Then add rollover relief using the group's combined acquisitions.
Finish with timed mixed sets: Section A style single rules, Section B scenarios of five questions, and a Section C written answer with headed workings and a short explanation of each choice.

Common mistakes in The effect of a group corporate structure for corporation tax purposes

Using one test for everything, such as applying the 75% test to associated companies
Fix: Name the test before you start. Associated means control; group relief and gains need a 75% group.
Dividing the limits by the number of associates and forgetting to count the company itself
Fix: Count every associated company including the one you are computing, then divide. Exclude dormant companies from the count.
Claiming more group relief than the claimant company's profits
Fix: Claim the lower of the loss available and the claimant's profit, and show it in a table.
Ignoring different accounting periods when matching losses and profits
Fix: Time-apportion both sides and use only the overlapping period.
Taxing a gain on a transfer between group members
Fix: Use no gain and no loss on intra-group transfers. Compute the gain only on the sale outside the group, using the original base cost.
Forgetting associated companies when testing for quarterly instalments
Fix: Divide the threshold by the number of associated companies, counting the company itself, before comparing it with the company's augmented profits.

Last-day revision: The effect of a group corporate structure for corporation tax purposes

Corporation tax rates: small profits rate 19%, main rate 25%, with limits of £50,000 and £250,000, given in the exam.
Marginal relief = (£250,000 – augmented profits) × 3/200 × taxable total profits ÷ augmented profits.
Associated companies share the limits: with 2 companies the limits are £25,000 and £125,000, with 4 they are £12,500 and £62,500.
Two companies are associated if one controls the other, or both are controlled by the same person or persons. Associated status does not need a 75% group. Include overseas companies. Exclude dormant companies from the count.
Group relief needs a 75% group. One company must own at least 75% of the other's ordinary share capital (directly or indirectly) and be entitled to at least 75% of its profits available for distribution and of its assets on a winding up. A claimant can claim no more than its own profits for the period.
Losses are surrendered to a claimant company, and the claimant's profit is cut by the amount claimed.
Where accounting periods differ, only the overlapping part of each period is matched.
Assets transfer within a gains group at no gain and no loss. The gain arises on sale outside the group.
A degrouping charge arises only if a company leaves the group within six years of receiving an asset from a group company on a no gain/no loss transfer, and it still owns that asset when it leaves. The gain is computed as if the company had sold and immediately reacquired the asset at market value at the date of the intra-group transfer. Where the company leaves because another group company sells its shares, the charge is normally treated as an adjustment to the proceeds of that share sale. Otherwise it is included in the leaving company's chargeable gains for the period it leaves.
For rollover relief, the group is treated as one for purchases of qualifying replacement assets.
Quarterly instalments apply only to large companies, meaning those with augmented profits above £1,500,000. The threshold is divided by the total number of associated companies, counting the company itself, whether or not they form a 75% group, so a company with associates may be large at lower augmented profits. A company that was not large in the previous period is not treated as large if its augmented profits do not exceed £10,000,000, also divided by the number of companies.
The instalment dates are not given in the Tax Tables, so you must learn them. For a large company with a 12-month accounting period, instalments fall due on the 14th day of months 7, 10, 13 and 16 after the period starts.

The effect of a group corporate structure for corporation tax purposes practice questions

The effect of a group corporate structure for corporation tax purposes in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

The effect of a group corporate structure for corporation tax purposes: frequently asked questions

What is the difference between an associated company and a group company?

Associated companies are linked by control, so they share the corporation tax limits. A group for relief purposes needs a 75% relationship. A company can be associated without being in a 75% group.

Do I need to memorise the corporation tax limits?

No. The rates, limits, standard fraction, marginal relief formula and instalment threshold are provided in the exam. You must know how to divide the limits and apply the formula.

Can a loss be carried to a company outside the group?

Group relief generally needs a qualifying group or consortium link. A company outside those relationships cannot claim a surrendered loss. Check the relationship before you claim.

How are group topics tested in the exam?

Section A and B cases test single rules, such as the number of associates or the effect of a transfer. Section C usually gives a group scenario where you compute tax and explain your choices. Practise both styles.