Set Ltd group of companies
Ghost Ltd – corporation tax payments
Steam Ltd capital loss
Ghost Ltd and Steam Ltd are members of a capital gains group because Set Ltd owns at least 75% of the ordinary share capital of both companies.
Accordingly, the capital loss in respect of the disposal of the building by Steam Ltd could be transferred to Ghost Ltd. However, the loss could only be offset against chargeable gains (i.e. not trading profit or other income) realised by Ghost Ltd after it became a member of the Set Ltd capital gains group on 1 June 2018.
Wagon Ltd trading losses
Ghost Ltd and Wagon Ltd are members of a group relief group because Set Ltd owns at least 75% of the ordinary share capital of both companies. Trading losses made whilst the companies are members of the group can be transferred from one company to the other.
Ghost Ltd became a member of the Set Ltd group relief group on 1 June 2018. Its eight-month accounting period ending on 31 December 2018 will have seven months in common with the 12-month accounting period of Wagon Ltd ending on 31 December 2018. Accordingly, the maximum trading loss which can be transferred from Wagon Ltd to Ghost Ltd is the lower of:
​​​​​​​– 7/12 of the trading loss of Wagon Ltd for the year ending 31 December 2018; and
– 7/8 of the taxable trading profit of Ghost Ltd for the eight-month period ending 31 December 2018.
The trading loss brought forward by Wagon Ltd cannot be transferred to Ghost Ltd.
Payments of corporation tax
In respect of the year ended 30 April 2018​​​​​​​
14 August 2018
The final payment for this accounting period will be due. The amount due is £597,500 (the total liability for the accounting period), less all the instalment payments already made in respect of the period.
In respect of the eight-month period ended 31 December 2018​​​​​​​
14 November 2018
​​​​​​​The first payment for this accounting period will be due. The amount due will be 3/8 of the estimated corporation tax liability for the eight-month period, i.e. £172,500 (3/8 x £460,000).

Wagon Ltd – value added tax (VAT)
Purchases from Line Co
On the assumption that the manufacturing components would be a standard rated supply if they were supplied in the UK, Wagon Ltd would normally be required to pay UK VAT at the standard 20% rate when it imports the components into the UK. However:
– if the goods are placed in a bonded warehouse, the VAT will not be due for payment until the goods are removed from the warehouse; and
– if Wagon Ltd is an approved trader within the duty deferment system, the payment of the VAT can be deferred.
Provided the components are used to make taxable supplies, the VAT paid can be reclaimed by Wagon Ltd as input tax on its VAT return.
Sales to Signal Co
Wagon Ltd will be required to charge UK VAT at 20% on the sales made to Signal Co because Signal Co is not registered for VAT. Signal Co will not be able to recover this VAT (because it is not VAT registered).
Wagon Ltd will be required to register for VAT in France if its sales to Signal Co and other non-registered customers in France exceed the European Union distance selling threshold for France.​​​​​​​

Dee Co and En Co – controlled foreign company (CFC) charge
Dee Co
No CFC charge can arise in respect of Dee Co because Set Ltd owns less than 25% of Dee Co’s ordinary share capital.
En Co
Low profits exemption
The low profits exemption does not apply even though En Co has taxable total profits of less than £500,000. This is because the company’s non-trading income exceeds £50,000.
Low profit margin exemption
The low profit margin exemption applies because En Co’s accounting profit of £280,000 does not exceed 10% of its operating expenditure of £3,200,000.​​​​​​​

Steam Ltd – Project Whistle
Loss reliefs available
A trading loss made by Steam Ltd in the year ending 31 December 2019 can be relieved, broadly speaking, in two ways:
(i) It can be offset against the income and gains of Steam Ltd and/or the taxable total profits of other companies in the Set Ltd group relief group.
– Steam Ltd could offset the loss against its total income and gains of the loss-making accounting period, and then against its total income and gains of the previous 12 months.
– The loss could also be offset against the current period taxable total profits of Set Ltd and any other company which is an effective 75% subsidiary of Set Ltd. Current period only.
– Any loss remaining will be carried forward by Steam Ltd for relief against its future profits arising in respect of the same trade.
(ii) Any amount of the loss up to a maximum of 230% of the qualifying research and development expenditure can be surrendered in exchange for a cash payment of 14·5% of the surrendered amount.
Factors to consider when choosing between the available reliefs
Relief under (i) above will result in a corporation tax saving of 19% of the loss relieved. This equates to a saving of 43·7% (230% x 19%) of the cost incurred in respect of the research and development.
Relief under (ii) above equates to a corporation tax saving of only 33·35% (230% x 14·5%) of the cost incurred.
Accordingly, a greater tax saving will be achieved by relieving the loss against taxable profits (under (i)) rather than surrendering it in exchange for a cash payment (under (ii)).
However, if there are insufficient profits to relieve all of the trading loss, any loss remaining will have to be carried forward unless it is surrendered in exchange for the 14·5% cash payment.
From a cash flow point, it will be better to claim the cash payment rather than to carry the loss forward. The cash payment option is also beneficial if it transpires that Steam Ltd will not make sufficient profits in the future to relieve the losses carried forward.
Tutorial note: The changes made to the rules relating to the relief for corporate losses introduced by the Finance No. 2 Act 2017 are not examinable until the June 2019 exam. However, credit was given to candidates who applied these new rules rather than the old rules.​​​​​​​