Skip to content
Solved

CTM18710 | Shadow ACT: utilisation of: companies leaving and joining a group

From HM Revenue & Customs · Company Taxation Manual

SI1999/358 reg13 (8) and (13)

Where the transferring and recipient companies were not members of the same group throughout one of the relevant accounting periods (APs), the capacity of the recipient company for that AP is

  • proportionately reduced by reference to the part of the period during which they were not both members of the group, and

  • further reduced by any previous attribution to the period when they were both members of the group.

When the parent company fails to make an allocation, an HMRC officer may make one. If the parent company subsequently makes an allocation, the officer’s allocation is treated as if it had not been made.

A company is not entitled to set unrelieved surplus ACT against its liability until the surplus shadow ACT of the other group members has been allocated.

Example

A parent company, company P, with unrelieved surplus ACT of £50,000 has CT profits of £100,000 for the twelve month accounting period (AP) ended 31.12.06. It pays a dividend of £250,000 generating shadow ACT of £50,000. The £20,000 capacity of the AP is all used so the company cannot use any of its unrelieved surplus ACT. The company now has surplus shadow ACT of £30,000. No unrelieved surplus ACT was used in any AP of the company ended in the 24 month period leading up to 31.12.06. The surplus shadow ACT must be allocated to subsidiary companies before any is carried forward.

P has three subsidiaries, company X, company Y and company Z. The subsidiary companies have the same APs as the parent but company Z did not become a member of the group until 1.07.06.

Company X has CT profits of £12,000, company Y has CT profits of £20,000 and company Z has CT profits of £100,000.

The surplus shadow ACT is allocated up to the maximum capacity as follows:

Company X - 20% x £12,000 = £2,400.

Company Y - 20% x £20,000 = £4,000.

Company Z £50,000 (50% of £100,000) = £10,000.

It is also necessary to look at the capacity of other APs ending in the 24 months to 31.12.06.

Company X has no capacity but company Y has capacity to absorb a further £2,000. The total allocated is £18,400 so parent company P must carry £11,600 forward.