ACCA Strategic Professional · Advanced Taxation (UK) · Corporation tax: the effect of a group structure
Sigma Ltd and Tau Ltd are 100% related UK companies with the same 31 March year end. Sigma Ltd is the only company in the group paying corporation tax at the main rate of 25% and has taxable total profits of £300,000 before loss relief for the year to 31 March 2026. Tau Ltd has a trading loss of £100,000 for that year. Ignoring marginal relief and associated company limits, what is the corporation tax saving if Tau Ltd surrenders the whole loss to Sigma Ltd, compared with Sigma Ltd not claiming it?
The saving is £25,000. The £100,000 loss reduces Sigma Ltd's profits that would be taxed at the 25% main rate, so tax falls by £100,000 multiplied by 25%. Using 19% would understate the saving because the profits relieved are taxed at the main rate.
- A£25,000Correct
- B£19,000
- C£15,000
- D£100,000
Explanation
The surrendered loss reduces Sigma Ltd's profits from £300,000 to £200,000. The saving is the loss multiplied by the main rate: £100,000 x 25% = £25,000. The 19% option wrongly uses the small profits rate.
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