Heyer Ltd group
Group planning
Requirement to pay corporation tax by instalments
In respect of the year ending 31 December 2017, a company in the Heyer Ltd group will be required to pay corporation tax in instalments if its taxable total profits (TTP) exceed £83,333 (£1,500,000/18) and either:
– it had TTP of more than £83,333 in the year ended 31 December 2016; or
– its TTP for the year ended 31 December 2017 are more than £555,556 (£10,000,000/18).
Tutorial note: Companies which have a corporation tax liability of less than £10,000, are not required to pay tax in instalments. This point is not referred to in the answer as none of the companies falls within this definition.
The Heyer Ltd capital gains group
The Heyer Ltd capital gains group consists of Heyer Ltd, its 75% subsidiaries and their 75% subsidiaries. In addition, Heyer Ltd must have an effective interest of more than 50% in any company which it does not own directly.
Accordingly, all of the group companies are in a single capital gains group with the exception of Orin Hod Ltd.
Amount of chargeable gains and capital losses to transfer between group companies
You should aim to:
1. Reduce the TTP of as many companies as possible to £83,333, such that they are no longer required to pay corporation tax in instalments.
2. Reduce the TTP of those companies which are still required to pay corporation tax in instalments, as this will reduce the amount of each instalment.
3. The whole or part of any current period chargeable gain and/or capital loss can be transferred between companies in a capital gains group.
– Gains and losses should be transferred in order to match them against each other.
– Gains should be transferred from a company which has TTP in excess of the £83,333 threshold to a company which has TTP below the threshold.
Relevance of the specific information
Mantet Ltd​​​​​​​
Mantet Ltd had TTP for the year ended 31 December 2016 of less than £83,333. Accordingly, it will not be required to pay its corporation tax liability for the year ended 31 December 2017 in instalments unless its TTP for that year are more than £555,556. With this in mind, chargeable gains should be transferred to Mantet Ltd from other companies in the Heyer Ltd capital gains group provided its TTP are kept below £555,556.
​​​​​​​Newell Rap Ltd​​​​​​​
Newell Rap Ltd’s capital losses are pre-entry capital losses because they were realised before Newell Rap Ltd was acquired by Heyer Ltd. These losses cannot be used to relieve gains on assets realised by other members of the Heyer Ltd capital gains group.
Orin Hod Ltd​​​​​​​
Orin Hod Ltd’s TTP exceed £83,333. However, it is not a member of the Heyer Ltd capital gains group because it is not a 75% subsidiary of Heyer Ltd. Accordingly, it is not possible to reduce its TTP by, for example, transferring its chargeable gains to other companies.
Other 100% owned companies​​​​​​​
All of these companies are required to pay corporation tax in instalments.
Current period chargeable gains and capital losses realised by these companies should be transferred to other companies in the Heyer Ltd capital gains group in accordance with the guidance set out above.​​​​​​​

Group restructuring
Chargeable gains
Chargeable assets, including the business premises, will be transferred at no gain, no loss automatically, because all of the companies are 75% subsidiaries of Heyer Ltd. Accordingly, no chargeable gains will arise.
Stamp duty land tax (SDLT)
No SDLT will be due in respect of the sale of the business premises because Heyer Ltd owns at least 75% of the ordinary share capital of all of the companies.
Capital allowances
Machinery and equipment will be automatically transferred at tax written down value, rather than market value, because Heyer Ltd controls at least 75% of each of the companies. Accordingly, no balancing charges will arise.
Capital losses
The unused capital losses of Newell Rap Ltd, and any other company whose trade and assets will be transferred, will not be transferred to Lodi Ltd, but current period capital losses can be transferred to companies in the same capital gains group, as set out above.

Pink Time Ltd
The taxable supplies of Pink Time Ltd will exceed the registration threshold of £83,000 by the end of November 2017 (£35,000 x 3 = £105,000). However, the company may apply to be exempt from registration because it only makes zero rated supplies.
It would be beneficial for Pink Time Ltd to register for value added tax (VAT) because it would then be able to recover its input tax. The fact that its customers are members of the public is irrelevant because Pink Time Ltd makes zero rated supplies and therefore will not be charging any VAT.
Pink Time Ltd would be in a VAT repayment position if it were to register for VAT because it only makes zero rated supplies. It could improve its cash flow position by making its VAT returns monthly rather than quarterly.

Disclosure of transfer pricing
It is more than 12 months since the return filing date, and therefore too late to amend the corporation tax returns. Accordingly, this information must be disclosed to HM Revenue and Customs (HMRC). We should encourage Heyer Ltd to make this disclosure.
The management of the Heyer Ltd group can inform HMRC or may authorise us to do so. However, we must not disclose the error to HMRC without permission.
We cannot continue to act for the companies unless this disclosure is made.
We should notify the group of the following consequences of not providing this information to HMRC:
– If they refuse to disclose the error, we will advise HMRC that we no longer act for them. We would not, however, give any reason for our actions.
– Non-disclosure of the error would also amount to tax evasion. This could result in criminal proceedings under both the tax and money laundering legislation.
We should inform our firm’s money laundering officer of the situation.
We should ascertain how the non-disclosure occurred in order to determine whether or not there may be other matters which have been omitted from the group companies’ corporation tax returns.