Group relief lets one company in a group surrender a loss to another that has profits to use it against, so the group pays tax on its net position rather than on each company separately. It is the ordinary answer where one entity is investing and another is profitable, and it turns on a definition of group that is narrower than most people assume.
The 75% test
Two companies are in a group relief group where one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third. The test is not just about share capital: the parent must be beneficially entitled to at least 75% of the profits available for distribution and at least 75% of the assets on a winding up. Arrangements that could change control can break the group even where the shareholding looks intact, which is why a group in the middle of a transaction needs to check rather than assume.
What can be surrendered
Trading losses, excess capital allowances, excess management expenses, qualifying charitable donations and non-trading loan relationship deficits, broadly for the same accounting period. Where the accounting periods do not coincide, the loss and the profit are apportioned to the overlapping part and only that part can be matched. Carried-forward losses can also be surrendered under the relaxed rules for losses arising from 1 April 2017, which materially widened what a group can do.
The claim, and its timing
Group relief is claimed by the receiving company in its own return, with the surrendering company consenting. The ordinary limit is the same as for amending that return: twelve months from the filing deadline, so two years from the end of the accounting period. Because a group's returns are often prepared together and filed late in the window, the practical risk is a group that leaves it to the last month and finds one company's figures are not final.
Questions people ask about group relief corporation tax
What is group relief for corporation tax?
The surrender of a loss by one group company to another with profits, so the group is taxed on its net position. It requires a 75% relationship measured by shares, distributable profits and assets.
Which losses can be surrendered?
Trading losses, excess capital allowances, excess management expenses, qualifying charitable donations and non-trading loan relationship deficits, with carried-forward losses arising from 1 April 2017 also available under the relaxed rules.
How is group relief claimed?
By the claimant company in its own return, with the surrendering company's consent, ordinarily within twelve months of that return's filing deadline.