ACCA TX: group relief for losses between companies
Group relief lets a company in a 75% group surrender a current-year loss to another group company to set against its taxable total profits. The examiner likes it because it combines group tests, loss choices and the rate of tax in one question.
The rule
Two UK companies are in a group relief group if one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company. That third company can be non-UK resident. The surrender is optional and can be partial, but it is limited to the claimant's profits of the same period and is not paid for. Compare the tax rate saved: group relief at the claimant's rate now against the loss-maker's own rate on carry back or carry forward. The claimant's rate is decided on augmented profits after the group relief claim, using limits of £50,000 and £250,000 divided by the number of related 51% group companies.
Worked example
Sub Ltd is a 100% subsidiary of Parent Ltd, with no other related 51% group companies. For the year ended 31 March 2026 Sub Ltd has a trading loss of £20,000. Its profits were £20,000 in the prior year and are expected to be £20,000 next year.
Limits are £50,000/2 = £25,000 and £250,000/2 = £125,000.
Parent Ltd has taxable total profits of £500,000, which is above £125,000, so it pays 25%.
Sub Ltd's profits of £20,000 are below £25,000, so it pays 19%.
Group relief: £20,000 × 25% = £5,000 saved now.
Carry back or carry forward in Sub Ltd: £20,000 × 19% = £3,800.
Best choice: surrender the loss to Parent Ltd, saving £1,200 more and getting relief sooner.
Remember: group relief is optional, so choose the relief that saves tax at the highest rate, and test the claimant's rate on profits after the claim.
Where candidates lose marks
Using the full £50,000 and £250,000 limits instead of dividing them by the number of related 51% group companies.
Deciding the claimant's rate on profits before deducting the group relief claim.
Thinking the common parent must be UK resident, when two UK sister companies with an overseas parent can still share losses.
Treating group relief as compulsory or assuming carry forward is always the fastest relief.
Try it: 4 questions
Dialtone Ltd, a call centre business, is the 100% subsidiary of Hollis Ltd. They have no other related 51% group companies, and both prepare accounts to 31 March.
Dialtone Ltd's position is as follows: - Trading loss for the year ended 31 March 2026: £60,000. - Taxable total profits for the year ended 31 March 2025: £20,000, taxed at 19%. - It expects taxable total profits of £24,000 for the year ended 31 March 2027. Its profits for each year consist only of trading profits. - It has no other income or gains in the year ended 31 March 2026.
Hollis Ltd has taxable total profits of £900,000 for the year ended 31 March 2026.
Which of the following is the best use of Dialtone Ltd's loss, with the correct reason?
Answer: A. Rule: the choice of loss relief depends on the rate of tax saved and the timing of relief. Group relief is optional, and a company can choose how much to surrender. With two related 51% group companies, the corporation tax limits are £50,000/2 = £25,000 and £250,000/2 = £125,000.
Tax rates: - Hollis Ltd's profits of £900,000 exceed £125,000, so it pays tax at 25%. - Dialtone Ltd's profits of £20,000 (prior year) and £24,000 (next year) are below £25,000, so both are taxed at 19%.
Tax saved under each option: - Group relief: £60,000 × 25% = £15,000, with relief in the current year. - Carry back and carry forward: £20,000 × 19% = £3,800 now, plus £40,000 × 19% = £7,600 later. The total is £11,400, and part of it is delayed over at least two future years. - Carry forward only: £60,000 × 19% = £11,400, all of it delayed.
Group relief gives both the highest saving and the earliest relief.
Why the other options are wrong: - Carry back and carry forward gives relief only at 19%, saving £3,600 less in total, and much of the relief is delayed. - Carry forward only is the trap. It gives the slowest relief, not the fastest, and only at 19%. - The compulsory option reaches the right action for the wrong reason. Group relief is a claim, never compulsory, and the decision should rest on the rate and timing of relief.
Metro Coaches Ltd is a bus operator. It has one wholly owned subsidiary, Rural Routes Ltd, and no other related 51% group companies. For the year ended 31 March 2026, Metro Coaches Ltd has total profits of £140,000 before a group relief claim of £40,000 from Rural Routes Ltd. Metro Coaches Ltd received no dividends.
What is Metro Coaches Ltd's corporation tax liability for the year ended 31 March 2026?
Answer: A. Rule: the marginal relief limits of £50,000 and £250,000 are divided by the number of related 51% group companies (here 2), giving £25,000 and £125,000. The rate is decided by augmented profits after deducting group relief.
Working: taxable total profits = £140,000 − £40,000 = £100,000. Augmented profits are also £100,000 (no dividends), which falls between £25,000 and £125,000, so marginal relief applies. CT at 25%: £100,000 × 25% = £25,000. Less marginal relief: 3/200 × (£125,000 − £100,000) = £375. CT liability = £25,000 − £375 = £24,625.
Why the other options are wrong: - £22,750 uses the full limits: £25,000 − 3/200 × (£250,000 − £100,000). - £25,000 tests the rate on profits before group relief (£140,000, above £125,000) and so applies the main rate with no marginal relief. - £35,000 ignores the group relief claim altogether: £140,000 × 25%.
Velo Frames Ltd and Velo Wheels Ltd are UK resident bicycle makers. Both are 100% owned by Velo Holdings Inc, a company resident overseas with no UK permanent establishment. For the year ended 31 March 2026, Velo Frames Ltd made a trading loss. Velo Wheels Ltd made taxable profits.
Can Velo Frames Ltd surrender its trading loss to Velo Wheels Ltd as group relief?
Answer: A. Rule: two companies are in a group relief group if one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company. The 75% relationship can be traced through a non-UK resident company. Losses can therefore be surrendered between UK resident companies with a common overseas parent.
Application: Velo Frames Ltd and Velo Wheels Ltd are both 100% subsidiaries of Velo Holdings Inc. They are in a group relief group, so Velo Frames Ltd can surrender its loss to Velo Wheels Ltd. Velo Holdings Inc itself cannot claim or surrender, but it does not need to.
Why the other options are wrong: - 'The common parent must be UK resident' is the trap. It confuses the residence of the claimant and surrendering companies, which are both UK here, with the residence of the parent. - 'Only parent and subsidiary' ignores that fellow 75% subsidiaries of a common parent qualify. - 'Only with a UK permanent establishment' is wrong because the parent's UK presence is irrelevant when the loss passes between two UK resident companies.
Hope Retail Ltd runs a network of charity shops through three trading companies. Its shareholdings have been the same for many years: - Hope Retail Ltd owns 100% of the ordinary share capital of Lantern Ltd. - Hope Retail Ltd owns 80% of the ordinary share capital of Poppy Ltd. - Poppy Ltd owns 90% of the ordinary share capital of Saffron Ltd.
All four companies are UK resident and prepare accounts to 31 March. In the year ended 31 March 2026 Lantern Ltd made a trading loss. All the other companies made taxable profits.
To which companies can Lantern Ltd surrender its trading loss as group relief?
Answer: A. Rule: two companies are in a group relief group if one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company. The parent must hold at least 75% of the subsidiary's ordinary share capital, directly or indirectly. An indirect holding is found by multiplying the percentages down the chain. Losses can be surrendered to any company in the same 75% group, including the parent.
Working: - Lantern Ltd: Hope Retail Ltd holds 100%. Lantern Ltd is in Hope Retail Ltd's group. - Poppy Ltd: Hope Retail Ltd holds 80%, which is at least 75%. Poppy Ltd is in Hope Retail Ltd's group. - Saffron Ltd: Hope Retail Ltd's effective interest is 80% x 90% = 72%, which is below 75%. Saffron Ltd is not in Hope Retail Ltd's group.
So Hope Retail Ltd, Lantern Ltd and Poppy Ltd form one group relief group. Lantern Ltd can surrender to Hope Retail Ltd and Poppy Ltd only. Poppy Ltd and Saffron Ltd form a separate group relief group (90%), but Lantern Ltd is not a member of it.
Why the other options are wrong: - Including Saffron Ltd ignores the requirement to multiply the holdings down the chain. Each link is at least 75%, but the effective interest is only 72%. - 'Hope Retail Ltd only' wrongly assumes losses can pass only between a parent and its direct subsidiary. Fellow 75% subsidiaries of a common parent are in the same group. - 'Poppy Ltd and Saffron Ltd only' wrongly excludes the parent company, which can claim group relief, and wrongly includes Saffron Ltd.
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Two companies are in a group relief group if one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company. The relationship can be traced through a non-UK resident parent, but the companies claiming and surrendering must be UK resident.
Is group relief compulsory in the UK?
No, it is optional. The loss-making company can choose how much to surrender, up to the claimant's profits, or use the loss in its own company instead.
Does the claimant company pay for group relief?
In the TX exam, no payment is required, and any payment made is ignored for tax. The tax saving is the loss relieved multiplied by the claimant's rate of corporation tax.