Taxation (UK) · The effect of a group corporate structure for corporation tax purposes

Group Relief for Trading Losses in ACCA TX-UK

Updated 11 October 2026

Group relief lets a company with a current period trading loss surrender it to another company in the same 75% group. The claimant sets it against its own total profits for the overlapping period. You match the periods, cap the claim at the lower of the loss and the profits, then work out the tax saved.

Understand Group Relief for Trading Losses

A company that makes a trading loss normally keeps that loss inside its own tax computation. If a company has no profits, the loss can sit unused. Group relief fixes this. Companies in a group can move the loss to a profitable group member, so the group pays less corporation tax overall.

The companies must be in a 75% group. This means one company owns at least 75% of the ordinary share capital of the other, directly or indirectly. For an indirect holding, the effective interest must be at least 75%. Both companies are called group members. The loss-making company is the surrendering company. The profitable company is the claimant company. Group relief works between any two members of the group, not only parent and subsidiary.

The relief is for current period losses. The claimant company sets the surrendered loss against its total profits for the period. The cap is the claimant's total profits less its own current-period trading loss relief, brought-forward losses and qualifying charitable donations. These are the profits available before group relief. The claim is limited to those profits. It can only relieve profits of the same period as the loss. So you must match accounting periods. If the periods differ, only the overlapping part counts.

Surrender and claim are voluntary. The surrendering company decides how much of its loss to give away, and the claimant decides how much to take. No payment is needed between the companies. Choose the claimant that pays the highest rate of tax. That is usually the company paying the main rate rather than the small profits rate, or one in the marginal relief band.

You can also keep the loss in the loss-making company. It can relieve its own total profits for the same period, or be carried forward against future profits. Group relief is useful when the loss-making company has little or no profit of its own.

Key rules to remember

Group test: Group relief group = parent holds at least 75% of ordinary share capital (directly, or indirectly with an effective interest of at least 75%); Applies to each pair of companies in the group. Check the shareholding first. The full law also requires entitlement to at least 75% of the profits available for distribution and of the assets on a winding up. If the facts give only the ordinary share capital percentage, apply the 75% share capital test.
Maximum group relief claim: Lower of (available loss for the overlap) and (claimant's profits available for group relief for the overlap); The claimant's profits available are its total profits less its own current-period trading loss relief, brought-forward losses and qualifying charitable donations. This is measured before group relief.
Matching different periods: Loss available = loss × (overlap months ÷ months in loss period); Profits available = profits × (overlap months ÷ months in profit period); Apportion to the nearest month. Use the overlap only.
Main rate and small profits rate: Main rate 25%; small profits rate 19%; lower limit £50,000; upper limit £250,000; The claimant's rate decides how much tax a surrender saves. Limits are divided by the number of associated companies, including the company itself (1 + number of other associated companies), and time-apportioned for short periods.
Marginal relief: (Upper limit – augmented profits) × standard fraction × taxable total profits ÷ augmented profits; standard fraction 3/200; Augmented profits are taxable total profits plus any exempt distributions, so group relief reduces both. Always recompute the profits after the claim before you test the limits.

How to solve Group Relief for Trading Losses questions

Use this method for any question on group relief for trading losses.

1Check the 75% group link. Confirm the shareholding and that both companies qualify as group members.
2Identify the accounting periods. List the loss period and each claimant's profit period, and find the overlap in months.
3Work out the loss available for the overlap. Time-apportion the loss if the periods differ.
4Work out the claimant's total profits for the overlap. Apportion profits as well if needed.
5Cap each claim at the lower of the available loss and the available profits. Do not create or increase a loss.
6Choose the best claimant. Look at which company pays the highest marginal rate and give relief there first.
7Recompute corporation tax for each company with and without the claim, or state the tax saved, and note any unused loss that can be carried forward.

Quickest way: Rate-first group relief method

When to use it: Use this when you must allocate a loss between two or more profitable group companies in limited time.

Write each company's profit and the loss available in a mini table.
Rank claimants by tax rate: 25% first, then marginal rate band, then 19%.
Give the loss to the top-ranked company, up to its profits for the overlap.
Pass any balance to the next company.
Tax saving = relief × rate. Check the total relief does not exceed the loss.

Common mistakes in Group Relief for Trading Losses

Treating a 51% subsidiary as part of the group relief group.
Students mix up the 51% test used for other purposes with the 75% test.
Fix: Check for at least 75% of ordinary share capital before you do any other work.
Ignoring the overlap when accounting periods differ.
Students match the full loss to the full profit without checking dates.
Fix: Find the overlapping months. Apportion both the loss and the profits to that overlap.
Claiming more than the claimant's total profits.
Students forget that group relief cannot create a loss in the claimant company.
Fix: Cap each claim at the lower of the available loss and available profits.
Giving relief to the company with the lowest tax rate.
Students allocate the loss in company order rather than by tax saving.
Fix: Allocate to the company paying the highest rate first, usually the main rate company.
Forgetting associated companies when working out the limits.
Students use the standard £50,000 and £250,000 limits for each group company.
Fix: Divide the limits by the number of associated companies, including the company itself, and then time-apportion if the period is short.

Worked examples

Example 1

Alpha Ltd owns 80% of the ordinary share capital of Beta Ltd. Both prepare accounts to 31 March 2026 and have no other associated companies except each other. Beta Ltd makes a trading loss of £60,000. Alpha Ltd has total profits of £250,000 before group relief, with no qualifying charitable donations, no own losses and no exempt distributions, so its taxable total profits before group relief are also £250,000. Using the rates provided, calculate the corporation tax saved if Beta surrenders the whole loss to Alpha.

Show the solution

Alpha holds 80%, which is at least 75%, so the companies are in a group.
The accounting periods are identical, so no apportionment is needed.
Alpha has no qualifying charitable donations or own losses, so its total profits for the cap are £250,000.
Maximum claim = lower of £60,000 loss and £250,000 profits = £60,000.
Associated companies: two, so the limits are halved: lower limit £25,000 and upper limit £125,000.
Without relief, Alpha's profits of £250,000 exceed £125,000, so tax at 25% = £62,500.
With relief, profits = £250,000 – £60,000 = £190,000. This is still above £125,000 (and there are no exempt distributions, so augmented profits are also £190,000), so the main rate applies in full and there is no marginal relief.
Tax with relief = £190,000 × 25% = £47,500.
Tax saved = £62,500 – £47,500 = £15,000. This equals £60,000 × 25%.

Answer: Beta surrenders £60,000. Alpha's corporation tax falls from £62,500 to £47,500, a saving of £15,000.

Example 2

Gamma Ltd has a trading loss of £48,000 for the year ended 31 December 2025. Its 100% subsidiary Delta Ltd has total profits of £120,000 for the 12 months ended 31 March 2026. This figure is already after any own losses and qualifying charitable donations. Gamma and Delta are the only companies in the group. Calculate the maximum group relief available to Delta.

Show the solution

The companies are in a 75% group because Gamma owns 100% of Delta.
Gamma's loss period is 1 January to 31 December 2025. Delta's profit period is 1 April 2025 to 31 March 2026.
The overlap runs from 1 April 2025 to 31 December 2025, which is 9 months.
Loss available = £48,000 × 9/12 = £36,000.
Delta's profits available = £120,000 × 9/12 = £90,000.
Maximum claim = lower of £36,000 and £90,000 = £36,000.

Answer: The maximum group relief available to Delta is £36,000.

Exam tips

Always start with the 75% group test and state it in your answer. It shows you have established the group link.
In Section C, show the apportionment of the loss and profits with the months clearly stated.
In objective test questions, look for traps: a 60% holding, an overlap of fewer months, or a claim above available profits.
Say which company should claim and why. Higher tax rate first is the usual reasoning.
Remember that associated companies reduce the small profits limits, which changes the tax saving.

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

Group Relief for Trading Losses: frequently asked questions

What is the shareholding needed for group relief?

You need a 75% group. One company must hold at least 75% of the ordinary share capital of the other, directly or indirectly. Both companies must be in the same group for the period of the claim.

Is group relief better than carrying a loss forward?

It depends on timing and tax rates. Group relief saves tax now and can save at the main rate, while carrying forward saves tax later. If the group has profits at 25% in the same period, group relief often gives the earlier and larger saving.

What if the accounting periods of the two companies differ?

Only the overlapping period counts. You apportion both the loss and the claimant's profits to the overlap, to the nearest month. The claim is the lower of the two apportioned figures.

Do the companies need to pay each other for group relief?

No payment is required. If the companies do agree a payment, any amount up to the loss surrendered is ignored for corporation tax. It is not taxable for the surrendering company and not deductible for the claimant.