Part 1 of 4
This is the Finance Act 2014 version of this article. It is relevant for candidates sitting the Paper P6 (UK) exam in the period 1 April 2015 to 30 June 2016. Candidates sitting Paper P6 (UK) after 30 June 2016 should refer to the Finance Act 2015 version of this article (to be published in 2016).
Groups of companies are an important aspect of corporation tax within paper P6 (UK). Having studied the basics of this area at Paper F6 you are now expected to progress to more advanced aspects. However, the basic rules continue to be of vital importance as they are the foundation on which the additional rules rest. You must have a sound knowledge of the many rules within this subject if you are to be able to handle an exam question involving groups.
This is not an introductory article; it is relevant to students coming to the end of their studies and finalising their preparations to sit the exam. It begins by briefly summarising the rules relating to both group relief groups and capital gains groups. It then goes on to consider a number of group relief tax planning issues that could be introduced in an exam question. It does not include comprehensive explanations of the rules but assumes a reasonable knowledge.
This article is intended to be read proactively, ie statements made should be confirmed as true by reference to the reader’s understanding of the rules, or to a relevant study text. This approach will enable future situations to be analysed from first principles rather than by reference to a rigid set of memorised planning points.
The tax rates and limits for financial year 2014, ending on 31 March 2015, are used throughout this article.
THE BASIC RULES
Figure 1 shows the structure of the H Ltd group of companies. It should be assumed that all of the companies in the group are resident in the UK. The minority shareholders in the group companies are companies with no relationship with H Ltd.
You should be able to review the group structure and confidently identify the members of any group relief groups and capital gains groups; do this before you read the information in Table 1.
Figure 1: The structure of the H Ltd group of companies