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Presented By: Presented To: Topic Roll No# Semester Class Subject

Hassan Ijaz Sir Imran Khalid Group s of Companies BSAF 12114 4th hhhh BS(Accounting & Finance) Business Taxation jjjj

Contents of Presentation
Associated companies & implications of being associated Criteria for group relief group

Criteria for capital gains group


Factors affecting choice of group relief

Associated companies & implications of being associated


A company is an 'associated company' of another company if one of the two has control or both are under the control of the same person or persons. It holds more than 50% Music plc. has the following shareholdings: Shareholding Alto Ltd 25% Bass Ltd 60% Cello Ltd 100% Drum Ltd 100% Echo Inc. 100% Flute Ltd 100% Music plc.'s shareholding in Cello Ltd was disposed of on 31 December 2012, and the shareholding in Drum Ltd was acquired on 1 January 2013. The other shareholdings were all held throughout the year ended 31 March 2013. Echo Inc. is resident overseas. The other companies are all resident in the UK
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Implications of being associated


All the companies are trading companies except for Flute Ltd which is dormant. Alto Ltd and Flute Ltd are not associated companies as Music Ltd has a Shareholding of less than 50% in Alto Ltd, and Flute Ltd is dormant. Bass Ltd, Cello Ltd, Drum Ltd and Echo Inc. are associated companies as Music Ltd has a shareholding of over 50% in each case, and they are all trading companies For associated company purposes, it does not matter where a company is resident. Echo Inc. is therefore included despite being resident overseas. Companies that are only associated for part of an accounting period, such as Cello Ltd and Drum Ltd, count as associated companies for the whole of the period.

Implications of being associated


Only one annual investment allowance (maximum 25000 p.a) is available for the group. There are four associated companies in the group Corporation tax rate limits are as follows: Upper limit:1500000/4=375000 Lower limit: 300000/4=75000

Criteria for group relief group


If two companies are members of 75% group relief group where:
One company is a 75% Subsidiaries of the others both companies are 75% subsidiaries of

a third company. Example The following information relates to the Tin ltd group:

Tin ltd
75% sub 1 75% sub 2 75% sub 3 Answer to example Tin ltd has a 75% direct holding in Sub 1,Sub 2, Sub 3 and therefore, all four companies are part of a 75% group for group relief purposes.

Criteria for capital gains group


If capital gains group criteria of parent company its 75% subsidiaries of first subsidiaries and so on. Gains group G ltd ,H ltd and I ltd are in gains group as there is 75% ownership at each level and G ltd (the parent ) owns more than 50%(75%75%=56.25%)in I ltd. G ltd does not own more than 50% of J ltd (75%75%75%=42.19%) and therefore J ltd does not form part of the gains group. I ltd and J ltd cannot from a separate gains group as I ltd is part of the G ltd gains group and cannot therefore be itself a parent company and form a separate gains group.

Factors affecting choice of group relief


The most important factor to be taken into account when considering group relief claims is the rate of corporation tax payable by the claimant companies. Group relief should therefore be surrendered as follows: Initially to companies subject to corporation tax at the marginal rate of 25%. Surrender should then be to those companies subject to the main rate of corporation tax of 24%. The amount surrendered should be sufficient to bring the claimant companys augmented profits down to the small profits rate limit. Any remaining loss should be surrendered to those companies subject to corporation tax at the small profits rate of 20%.