ATXP6 UK
Syllabus A4. Corporation Tax A4e. Group Structure for C.T.

A4eiv/v. Consortium owned company and member

Syllabus A4eiv/v)

Understand the meaning of consortium owned company and consortium member 
and
Advise on the operation of consortium relief

Further loss relief is available if companies are structured as a consortium

The tax reliefs available between qualifying companies where a consortium is involved are more limited than for a 75% loss group.

Definition of a consortium

There are several parts of the definition:

  1. A consortium exists where two or more companies (UK or overseas) between them own at least 75% of another company, and each company’s holding is at least 5%. 

    For example, A Ltd owns 60% of C Ltd and B Ltd owns 20% of C Ltd, then these companies will qualify to be in a consortium.

  2. Ownership includes ordinary shares and assets and profits as for a 75% group.

  3. The investing company is known as a consortium member. 

    For example, in the above situation, A Ltd and B Ltd will be the consortium members.

  4. The target company is known as a consortium company. 

    
For example, in the above situation, C Ltd will be the consortium company

  5. The consortium company cannot be a member of a 75% loss group.

Consortium relief

is similar to group relief in many ways but with one main exception losses can only be surrendered from a cc to cm or from a cm to cc.

  • For example, A Ltd can surrender losses to C Ltd and vice versa, and B Ltd can surrender losses to C Ltd and vice versa BUT A Ltd cannot surrender losses to B Ltd.

    Current period and carried forward losses can be surrendered under consortium relief. 

    If the loss is made by the consortium company, the amount surrendered must first be reduced by any potential loss relief claims against its own profits.

How much loss can be surrendered?

Between consortium company (CC) and the UK consortium members (CM), ie not between the members. 

The maximum amount of loss that can be surrendered:

Lower of:


  • % ownership x consortium company’s (target co) Taxable total profits or Loss

  • Consortium member’s (investing co) Taxable total profits/Loss

Illustration:

P Ltd. has TTP £50,000 and owns 70% of C Ltd.
Q Ltd. has TTP £15,000 and owns 30% of C Ltd.
C Ltd has a loss of (£60,000)

  • What is the maximum consortium relief available for P Ltd and Q Ltd?

Solution:

Maximum Consortium relief available is the lower of:

TTP of members/loss of consortium company * % ownership

P Ltd:

Maximum Consortium relief available is the lower of:

TTP £50,000
loss of consortium company * % ownership = £60,000 * 70% = £42,000

Loss relief available: £42,000 against P Ltd. profits

Q Ltd

Maximum Consortium relief available is the lower of:

TTP £15,000
loss of consortium company * % ownership = £60,000 * 30% = £18,000

Loss relief available: £15,000 against Q Ltd. profits

Illustration

X Ltd. has a loss of (£100,000) and owns 40% of C Ltd.
Y Ltd has TTP of £15,000 and owns 38% of C Ltd.
C Ltd has TTP of £50,000.

  • How can X Ltd obtain loss relief within the consortium?

Solution

X Ltd. can use part of its loss to relieve up to 40% of C Ltd. TTP = £20,000

X Ltd. cannot surrender any of its loss to Y Ltd.