Part 4 of 4
This is the Finance Act 2021 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2022 to 31 March 2023. Candidates sitting ATX-UK after 31 March 2023 should refer to the Finance Act 2022 version of this article (to be published on the ACCA website in 2023).
So far we have reviewed the definitions of a group relief group and a capital gains group and considered some aspects of group planning.
In this final part we look at double tax relief and companies joining and leaving the group. Throughout this review of tax planning issues, the term ‘losses’ will be used to represent any/all tax attributes that can be surrendered via group relief.
Double tax relief
Any foreign tax available for offset against a company’s corporation tax liability must be taken into account when planning the utilisation of losses. Sufficient overseas profits should remain subject to UK corporation tax in order to avoid wasting the double tax relief as set out in the illustration below.
KT Ltd has taxable total profits of £280,000 of which £80,000 has arisen overseas. The overseas tax on the overseas profits is £14,400. There are losses in the KT Ltd group relief group in excess of £280,000 and the intention is to reduce the UK corporation tax liability of KT Ltd, after the deduction of double tax relief, to zero.
KT Ltd will not waste any double tax relief if the UK corporation tax liability in respect of its overseas income equals the overseas tax suffered of £14,400. Accordingly, it needs to have taxable overseas profits of £75,789 (£14,400/19%) and to claim group relief of £204,211 (£280,000 – £75,789). Note that the company can choose to offset the group relief against its UK profits before its overseas profits. The company’s final corporation tax computation is as follows: