(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.
(2). The trading losses should be surrendered to P Ltd. Relief will be obtained at the main rate in respect of £7,500 (£195,000 – £187,500) of losses and at the marginal rate in respect of the balance: a total saving of £7,069.
Surrendering the losses to Q Ltd would result in relief at the marginal rate in respect of £9,500 (£47,000 – £37,500) and at the small company rate in respect of the balance: a total saving of £6,356.
(3). The corporation tax limits for RT Ltd for the 10 months ended 31 January 2014 are:
Upper limit £250,000 (£1,500,000 x 1/5 x 10/12)
Lower limit £50,000 (£300,000 x 1/5 x 10/12)
From the point of view of loss utilization, RT Ltd can be regarded as paying corporation tax at the following rates.
| £ | ||
|---|---|---|
| On profits up to the lower limit (£50,000 x 20%) | 10,000 | |
| On profits between the limits (£120,000 x 23.75%) | 28,500 | |
| Total liability | 38,500 |
The losses will first relieve the profits taxed at the marginal rate (£120,000) and then £20,000 of the profits taxed at the marginal rate as set out below.
| £ | ||
|---|---|---|
| On profits between the limits (£120,000 x 23.75%) | 28,500 | |
| On profits below the lower limit (£20,000 x 20%) | 4,000 | |
| Total tax saved | 32,500 |