Corporation tax – Group relief (for Advanced Taxation - United Kingdom (ATX-UK) (P6))

Test your understanding: answers

(1). Trading losses cannot be surrendered to K Co unless it has a permanent establishment in the UK.

Trading losses can be surrendered to FG Ltd because it is resident in the UK.

. The trading losses should be surrendered to:

P Ltd – £7,500

This will reduce the profits of P Ltd to £187,500, the quarterly payments threshold, such that the company will no longer be required to pay its corporation tax liability in instalments.

Q Ltd – £22,500 (the balance of the losses)

Q Ltd is required to pay corporation tax in instalments. However, it is not possible to reduce its profits down to the quarterly payments threshold. Accordingly, once the profits of P Ltd have been reduced to the threshold, the remaining losses should be surrendered to Q Ltd in order to reduce that company’s quarterly payments.