FINANCE BILL 2000
CLAUSE 99: LIMIT ON AMOUNT OF GROUP RELIEF IN CASE OF CONSORTIUM CLAIM
SUMMARY
1. Clause 99 corrects a minor technical defect in the rules determining the maximum amount of a consortium claim to group relief. The amendment will be deemed always to have had effect.
2. The current rules result in an excessive restriction in the amount of consortium relief which could be claimed where one of the members of the consortium held its interest for only part of the period for which relief was claimed.
DETAILS OF THE CLAUSE
3. Subsection (1) replaces section 403C of the Taxes Act with a re-written provision.
4. New section 403C(1) provides for the amount of a consortium claim to group relief to be limited by the rules in the remainder of the new section.
5. New section 403C(2) sets out the rule for a claim to relief by a member of a consortium. It limits the claim to the ?relevant fraction? of the amount available for surrender for the ?overlapping period? (that is, the period which is common to the accounting period of the claimant company and that of the surrendering company, and during which the qualifying conditions for group relief are satisfied). The fraction is defined as the lowest of
- the percentage of the surrendering company's ordinary share capital beneficially owned by the claimant company,
- the percentage of the distributable profits of the surrendering company to which the claimant company is beneficially entitled, and
- the percentage of the net assets of the surrendering company to which the claimant company would be beneficially entitled if the surrendering company were to be wound up.
6. Where any of the percentages has fluctuated during the overlapping period, an average percentage is to be taken.
7. New section 403C(3) sets out the equivalent rule for a surrender by a consortium member. Its effect is to limit any claim by a company owned by the consortium to the "relevant fraction" of the claimant company's total profits for the overlapping period. That fraction is the lowest of
- the percentage of the claimant company's ordinary share capital beneficially owned by the surrendering company,
- the percentage of the distributable profits of the claimant company to which the surrendering company is beneficially entitled, and
- the percentage of the net assets of the claimant company to which the surrendering company would be beneficially entitled if the surrendering company were to be wound up.
8. Where any of the percentages has fluctuated during the overlapping period, an average percentage is to be taken.
9. New section 403C(4) provides for the case where the company owned by a consortium which is party to the claim (whether as the claimant or surrendering company) is a subsidiary of a consortium holding company. In such a case, the percentages in subsection (2) and (3) above are to be those held by the member of the consortium in the consortium holding company.
10. New section 403C(5) provides that expressions used in this section are to have the same meaning as they have in section 403A.
11. New section 403C(6) provides that the group relief anti-avoidance provisions in Schedule 18 are to have effect for supplementing this section.
12. Subsection (2) makes a consequential change to section 406(6) of the Taxes Act 1988. This ensures that the limit of relief is correctly calculated where a company which is the same group as a consortium member (the ?link company?) claims group relief rather than the consortium member itself.
13. Subsection (3) repeals those provisions (in particular section 413(7) and (8)) which the re-written section 403C renders unnecessary.
14. Subsection (4) provides for consequential amendments of cross-references to the repealed provisions.
15. Subsection (5) deems the amendments always to have had effect.
BACKGROUND
16. Group relief allows a company to claim the benefit of trading losses and certain other reliefs of another company if both companies are members of the same group. Group relief is extended to consortia. A consortium exists where companies (the consortium members) each own at least 5 per cent, and together own at least 75 per cent, of the share capital of
- a trading company, or
- a holding company whose business is wholly or mainly the holding of shares in trading companies of which it owns 90 per cent of the ordinary share capital.
17. There are rules which limit consortium claims to group relief by reference to the consortium member's share in the consortium. There are also rules applying to group relief generally which limit the amount of relief where the qualifying conditions are not satisfied for the whole of the relevant accounting period (for example, where a company enters a group or a consortium during an accounting period). Currently these two sets of rules interact in such a way that relief is excessively restricted where a consortium member has held its interest in the consortium for only part of the period for which relief is claimed.