Losses in a Group of Companies

Newsletter issue - November 08.

Although single companies can normally only carry losses forward, where there are several companies in a group the losses made by one company can be set against profits made by other companies for the same year. Companies are regarded as a group when either 75% of the ordinary shares from one company are owned by the other company, or two or more companies are each owned at least 75% by a holding company.

Where a group exists all the trading losses, property losses, and excess charges (but not capital losses) arising in the loss-making company can be transferred to another company in the same group, to reduce the corporation tax that company pays for the same accounting period. You can opt to move as little or as much as the loss as you wish.

If you have more than one company it is therefore worth considering if they should be arranged in a group structure to take advantage of group loss relief.

Companies pay corporation tax at different rates according to the level of their taxable profits, so it makes sense to move the losses to the company that pays the highest marginal rate of corporation tax. The calculations can get quite complicated where there are a number of different types of income and various sizes of company in the same group, but we can help you reach the most tax efficient solution.