Cinnabar Ltd has also requested advice on the potential to claim relief for losses incurred in a new joint venture.

Cinnabar Ltd:
– Is a UK resident trading company.
– Has one wholly-owned UK subsidiary, Lapis Ltd.
– Is a small enterprise for the purposes of research and development expenditure.
– Prepares accounts to 31 March each year.
– Expects to pay corporation tax at the main rate for all relevant accounting periods.
– Intends to enter into a joint venture with another UK company, Amber Ltd. This joint venture will be undertaken by a newly incorporated company, Beryl Ltd.

Beryl Ltd:
– Will be incorporated in the UK and will commence trading on 1 January 2016.

– Is anticipated to generate a trading loss of £80,000 in its first accounting period ending 31 December 2016.

– Will have no sources of income other than trading income.

Alternative capital structures for Beryl Ltd:
– Two alternative structures have been proposed for the shareholdings in Beryl Ltd:

– Structure 1: 76% of the shares in Beryl Ltd will be held by Amber Ltd, with the remaining 24% held by Cinnabar Ltd;

– Structure 2: 70% of the shares will be held by Amber Ltd, 24% by Cinnabar Ltd and the remaining 6% held personally by Mr Varis, the managing director of Amber Ltd.

Required:
(c) Explain, with supporting calculations, the extent to which Cinnabar Ltd can claim relief for Beryl Ltd’s trading loss under each of the proposed alternative capital structures. (8 marks)