Group Companies in the UK
The corporation tax system in the UK includes a number of measures that prove advantageous to members of qualifying groups. The UK Corporate Tax regime is mandated to incorporated companies (limited by shares or guarantee) and other organizations including clubs and associations. The UK Corporation Tax regime is run on self-assessment; the taxpayer is responsible for calculating their own taxable profits. They keep an eye out for any reliefs that may apply, tax adjustments that are required and whether any anti-avoidance rules may be relevant.
Although there exists certain tax benefits and specific rules for “group” companies, the general rule is that each entity is required to prepare a separate tax return and calculate its tax liability. Submitting “group” tax returns is not an option.
What is considered a group of companies?
A group of companies consist of a parent company having its business in UK and one or more subsidiary companies, satisfying the conditions of ICTA88/S240. The 51% subsidiary company has to be stationed in the UK and fulfil the conditions of ICTA88/S238.
A parent company is the main company in the group. It ceases to be a parent company if it itself is a 51% subsidiary of another company or does not have a 51% subsidiary company in the group. A parent company and all its 51% subsidiaries cannot be members of the same group.
The subsidiary companies in the group can also be a parent company in another group of companies. This is so long as the member companies in that group are not subsidiary companies in the first group.
What are related group companies?
Related group companies in the UK refer to a network of interconnected subsidiaries or affiliated companies under the ownership or control of a common parent company, often sharing resources, management, and strategic direction within the British corporate framework.
Two companies in a group are said to be related within a group of companies during a particular period or part of it, if one of them is a subsidiary of the other or both are subsidiaries of the same parent company.
Taxation
Group companies are subject to Shadow ACT under the Advanced Corporate Tax (ACT) regime of the UK. ACT applies to a UK company who would qualify for tax based on the amount of distribution it made, at the time that it was done. The advance tax paid, was adjusted under the pay-and-file regime against corporation tax already paid in an accounting period earlier, or against the surrender of a 51% subsidiary. ACT was abolished for distributions made after 5 April 1999, when the quarterly payment regime for larger corporate entities was introduced. Therefore, if warranties are suitably limited to four years or even six years preceding the date of the transaction, no warranties relating to ACT should be necessary except warranties relating to ‘shadow ACT’.
Shadow ACT will be relevant only in respect of companies which had unrelieved surplus ACT (that is, ACT which had not been set off as described above and which would have been eligible for carry-forward) on 5 April 1999.
‘Unrelieved surplus ACT’ is in effect the amount which, had the provision for carry forward not ceased to have effect, would have been carried forward from 6 April 1999. As unrelieved surplus ACT cannot be surrendered, there is a real prospect of unused ACT being repositioned in a group as a result of a claim under ICTA88/S240 in respect of an accounting period beginning before 6 April 1999.
Group companies, defined under the same module of ICTA88/S240, are therefore subject to all the rules and regulations of taxation under the Unrelieved surplus ACT.
Utilizing iXBRL and XBRL Taxonomy for Compliance
To streamline the compliance process for group companies, leveraging an iXBRL viewer can be extremely beneficial. An iXBRL viewer allows for easy review and validation of financial statements, ensuring accuracy and adherence to HMRC’s requirements. Moreover, understanding and applying the correct XBRL taxonomy is crucial for accurate tagging and reporting of financial data. By using the appropriate XBRL taxonomy, companies can ensure that their financial statements meet the necessary standards, simplifying the submission process and enhancing overall compliance.
DataTracks has helped a number of companies in the UK navigate through the waters of iXBRL Tagging Service requirements and reach the shores of compliance safe and sound. Whether you’re a large accounting firm or a business navigating complex reporting requirements, DataTracks UK streamlines the process and mitigates the risk of penalties. Get in touch with us today at enquiry@datatracks.co.uk so we can help your company and/or group of companies stay on the good side of regulatory reporting.
