When you run a group of companies it’s natural for some to perform better than others, especially if they serve different industries or markets. Whilst one of your companies might be thriving, another could well be having a much slower year. 

In such a scenario Corporation Tax Group Relief can be of great help. Group Relief allows companies within the same group to share certain types of losses, helping to reduce the group’s overall Corporation Tax bill. 

Essentially this means one company’s loss can help another company save tax, improving cash flow and making sure your group gets the most from every penny earned.

Today we’ll explain exactly how Corporation Tax Group Relief works, plus when and how companies can claim it.

What is Corporation Tax Group relief?

Group Relief is a rule that lets one company use another company’s trading losses to reduce its own taxable profits, provided both are part of the same group.

It’s a way for groups of companies to be taxed more efficiently overall, rather than each company being treated completely separately. If one company makes a profit and another makes a loss, Group Relief helps balance things out across the group.

It only applies to Corporation Tax, and it’s mainly used when one company has unused losses that could otherwise go to waste. By sharing them, the overall tax burden for the group can be reduced, freeing up funds to reinvest in the business.

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When can companies claim Group Relief?

To qualify, there are a few key conditions to meet. The main one is the ownership test. Essentially, the companies must be part of the same group, which means one company must own at least 75% of another.

More specifically:

• The parent company must hold more than 75% of the ordinary share capital.
  
  
• It must also be entitled to more than 75% of the profits available for distribution.
  
  
• And it must have more than 75% of the assets on a winding up.
  
  

Both companies also need to be UK resident, or at least trading through a UK branch of an overseas company that meets the same conditions.

Finally, the claim must relate to the same accounting period. You can’t offset a loss from a different financial year.

For example:

‍If Company A owns 80% of Company B, and both have the same year-end, Company B’s trading losses can usually be set against Company A’s taxable profits for that year.
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What types of losses can be shared?

Not every type of loss can be transferred under Group Relief,  it’s mainly designed for trading and property losses.

Here’s what can and can’t be shared:

In other words, if the loss comes from your company’s normal business activities in the same accounting year, it’s likely eligible.
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How to claim Group Relief

Making a Group Relief claim is relatively straightforward, but it does require agreement between both companies.

Here’s how it usually works:

1. The loss-making company agrees to surrender its losses.
   
   
2. The profit-making company claims those losses against its own taxable profits.
   
   
3. Both companies reflect this arrangement in their Corporation Tax returns.
   
   

The claim must be made within two years of the end of the loss-making company’s accounting period.

The amount surrendered can’t exceed the available losses or the profits of the claimant company. Once a loss has been used under Group Relief, it can’t be used again elsewhere.

Because timing, ownership, and accounting alignment all matter, it’s usually best to speak to an accountant before making a claim. Especially if your group structure has changed recently.

Realistic example

Let’s say your group has two companies:

• Company X made a £100,000 trading loss this year.
  
  
• Company Y, in the same group, made a £150,000 profit.
  
  

Through Group Relief, Company Y can claim Company X’s £100,000 loss - reducing its taxable profit to £50,000.

If Corporation Tax is charged at 25%, that’s a saving of £25,000 across the group.

Instead of one company paying full tax while another sits on unused losses the group’s overall tax bill goes down, keeping more money within the business.

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Making the most of Group Relief

Corporation Tax Group Relief is a smart way to reduce your group’s overall tax bill, but it only works when you meet the ownership, residency, and timing conditions.

Here’s a quick recap:

• Group Relief lets you offset one company’s losses against another’s profits.
  
  
• You’ll need 75% ownership and matching accounting periods.
  
  
• Only certain types of losses qualify — mainly trading and property losses.
  
  
• Claims must be made within two years of the loss period.
  
  

If you manage it well, Group Relief can make a real difference to your cash flow and tax efficiency, particularly if your group’s performance varies from company to company.

If you are not entirely certain on whether your companies qualify, or want expert help making a claim, Crunch’s accountants can guide you through the process and ensure you’re getting the most from every relief available.

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