SolvedCH82284 | Penalties for Inaccuracies: Calculating the penalty: Potential lost revenue Corporation Tax Group Relief or S458 CTA10: Example of PLR where Group Relief reduced due to an overstated loss
From HM Revenue & Customs · Compliance Handbook
You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.
A, B and C are a group of companies. Their returned results are
| Company A profits | 50,000 | less Group Relief 50,000 | |
| Company B loss | (75,000) | ||
| Company C profits | 60,000 | less Group Relief 25,000 | |
| Aggregate profit | 35,000 |
In this example Company B’s return is carelessly inaccurate. Company B’s true loss is £40,000, so the Group Relief surrenders must be reduced.
Company B must, and does, withdraw its surrenders of £50,000 to Company A and £25,000 to Company C. Company B then surrenders £40,000 to Company A.
The ‘ignore Group Relief’ rule does not prevent a penalty being charged on the inaccurate claims for relief.
The Group Relief claims by both Company A and Company C are inaccurate. It is only necessary for the claims originally made by Company A and Company C to have been inaccurate, not carelessly inaccurate.
Assuming liability at the small companies’ rate, the additional tax due and payable as a result of putting right the inaccuracy is as follows.
| A Ltd | Correct | Original | Additional |
|---|---|---|---|
| Trading income | 50,000 | 50,000 | 0 |
| Less Group Relief | 40,000 | 50,000 | -10,000 |
| Profits chargeable to CT | 10,000 | 0 | 10,000 |
| Tax at small companies’ rate (say 21%) | 2,100 | 2,100 | |
| C Ltd | Correct | Original | Additional |
| Trading income | 60,000 | 60,000 | 0 |
| Less Group Relief | 0 | 25,000 | -25,000 |
| Profits chargeable to CT | 60,000 | 35,000 | 25,000 |
| Tax at small companies’ rate (say 21%) | 12,600 | 7,350 | 5,250 |
The PLR for Company B’s penalty is calculated by reference to the additional amount of tax payable by Companies A and C, taking into account the reduced amount of Group Relief available, as follows.
| Additional tax payable by Company A | 2,100 |
| Additional tax payable by Company C | 5,250 |
| Total PLR for Company B | 7,350 |