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i have a big confusion in what acca study hub material has stated . they hv stated the follwing reliefs
“Current period adjusted trading losses;
Brought forward trading losses, provided they cannot be used against the surrendering company’s own total profits;
Unrelieved current period property business losses
Brought forward property business losses, provided they cannot be used against the surrendering company’s own total profits;
Unrelieved qualifying charitable donations (i.e. where they exceed total profits) – these are treated as surrendered prior to unrelieved property business losses.
Note the word ‘unrelieved’ in respect of QCDs and property business losses. Qualifying charitable donations and property business losses are only unrelieved if they exceed the surrendering company’s other profits, before any loss reliefs (i.e. they must be set off against the surrendering company’s total profits before any remainder can be group relieved).”this below is the example they’ve given
Black Ltd has one 75% subsidiary, White Ltd. Both companies have an accounting reference date of 31 March. The results for each company for the two years ended 31 March 2024 and 31 March 2025 are:
Year ended 31 March 2024 Year ended 31 March 2025
£ £
Black Ltd
Trading profit 40,000 85,000
Property business income 3,500 5,000
White Ltd
Trading profit/(loss) (90,000) 20,000
Property business income 4,500 4,500
Year ended 31 March 2024
• White Ltd can offset £4,500 of loss against the property business income and surrender £43,500 (40,000 + 3,500) of its losses to Black Ltd.
• Losses of £42,000 (90,000 – 4,500 – 43,500) are carried forward to the year ended 31 March 2025.
Year ended 31 March 2025
• White Ltd must initially set the carried forward losses against its own total profits of £24,500 (20,000 + 4,500).
• The remaining losses of £17,500 (42,000 – 24,500) can be surrendered to Black Ltd, reducing the company’s taxable total profits to £72,500 (85,000 + 5,000 – 17,500)my question is in the rules they said bf trading loss shld not be offset againt surrendering comp own profits. then y did they do this in the example abve?
It is not compulsory for trading losses brought forward (and property losses brought forward for that matter) to be offset against the surrendering company’s own total profits (as it’s a claim, and the only time that the amount can be chosen rather than having to offset the entire loss as much as possible (as with a current year and a carry back claim)). The point is that brought forward losses can be group relieved BUT ONLY TO THE EXTENT THAT THE SURRENDERING COMPANY CANNOT RELIEVE IT AGAINST ITS OWN TOTAL PROFITS IF A CLAIM WERE MADE, i.e., they can only be relieved if they are excess.
So in the example you give;
White does not need to make the current year claim against its own total profits of £4,500 if it doesn’t want to (for example, if it left unrelieved qualifying charitable donations (QCDs)). It could group relieve the entire amount if the claimant company has sufficient profits to absorb it.
When a loss is brought forward, if the company bringing forward the loss COULD relieve it against its own total profits, then it doesn’t HAVE to make the claim, but even if it doesn’t, it will still restrict the amount that it can surrender to another group company.
So in 2024, the current year claim is made, relieving £4,500 of the loss. A maximum group relief claim is made, relieving £43,500 of the loss to Black, leaving £42,000 of the loss remaining to carry forward.
It cannot group relieve the entire £42,000 as it has to CONSIDER any claim that it could make against its own total profits (£24,500) so the maximum group relief claim is £(42,000 – 24,500) = £17,500.
ok so what i understood from ur explanation is that the bf loss of 42000 need not to be compulsorily set off against white ltd total profit of current yr march 25 which is 24500. so white ltd can retain its current yr profits of 24500 but the amt of bf loss that it can claim from grp relief will be 42000-24500-17500( the calculation had it actually set off bf loss against current yr profits).
so taxable total profit of both comp for march25 can be:case 1 if not set off against current yr total profits
black ltd- 72500 white ltd-24500case 2 if white ltd set off against current yr total profits
black ltd-72500 white ltd -0plz correct me if i am wrong
You are absolutely correct (except it’s the next period (not current year)).
2024: current year claim vs White’s total profits = £4,500 then a group relief claim against Black’s TTP = £43,500, leaving £(90,000 – 4,500 – 43,500) = £42,000 to carry forward to 2025.
2025: White could offset against it’s own total profits, and if it did, it would reduce it’s total profits (£24,500) to nil leaving the balance of the loss £(42,000 – 24,500) = £17,500 for group relief vs Black’s TTP of £90,000, leaving £72,500 taxable in Black
If White decided not to offset against it’s own total profits, then it could still only group relieve £17,500 to Black, so £24,500 would be taxable in White, and £72,500 taxable in Black.
thanks that was very clear nd helpful.
i hv another qtn of tax planning when it comes to grp releifs .
i cant provide the entire qtn here so just providing with the imp details.neptune ltd has prior yr total profits of 20000. current yr losses r 110k. so i can releive 20000 from prior claim. the total associate companie are 5 . so this reduces the threshold to 10000-50000 for augmented profits. coming to calcuate how much tax refund i would get from prior yr claim as per info provided till now it will be 20000*26.5%=5300 . i assuming bcoz the 20000 falls between 10000 nd 50000. right?
suppose prior yr taxable total profits were 70000. nd still only 20000 of loss is remaining to claim here at what rate would the tax refund be? is it like the rate is the band in which he taxable total profit falls? here 70k is above 50k limit beign at 25% so refund will be 20000*25%?
With previous year profits of £70,000 (and the upper limit being £50,000), as the full £70,000 would have been taxed at 25%, then if a £20,000 loss was carried back, it would reduce those profits to £50,000 (and therefore still taxed at 25%), then the refund would be £20,000 x 25% = £50,000.
With previous year profits of £20,000, and the lower limit being £10,000 and the upper limit being £50,000, as the £20,000 would have been taxed at 25% less marginal relief, the refund WOULD NOT BE AT 26.5% as this rate only applies to the profits falling BETWEEN THE LOWER AND UPPER LIMITS.
The original tax paid would have been:
£20,000 x 25% = £5,000 less marginal relief.
Marginal relief would have been: 3/200 (50,000 – 20,000) = £450, so CT payable would have been
£(5,000 – 450) = £4,550, which would be the refund.£10,000 at 19% (up to the lower limit) = £1,900
£10,000 x 26.5% ( BETWEEN THE LOWER AND UPPER LIMIT) = £2,650£(1,900 + 2,650) = £4,550.
With previous year profits of £60,000 (and the upper limit being £50,000), as the full £60,000 would have been taxed at 25%, then if a £20,000 loss was carried back, it would reduce those profits to £40,000 and therefore taxed at 25% less marginal relief
Was: £60,000 x 25% = £15,000
Now: £40,000 x 25% = £10,000
Less marginal relief: 3/200 (50,000 – 40,000) = £150
So £(10,000 – 150) = £9,850
Refund of £(15,000 – 9,850) = £5,150Or refund of:
£10,000 x 25% (above the upper limit) x 25% = £2,500
PLUS £10,000 x 26.5% = £2,650 (between the limits)
Giving a total refund of £5,150under notional asset transfer btw comp, shld the companies compusorily be part of capital gain grp or 75% grp?
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