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Corporation Tax LiabilitiesSection BCorporation TaxGroupsGroup Relief

ACCA · Question 26 · Corporation Tax Liabilities

Section B: Case 3 - Meridian Logistics Plc

Scenario: Meridian Logistics Plc is the parent company of a cross-border shipping and warehousing group. Meridian Logistics Plc owns 80% of the ordinary share capital of Alpha Ltd. Alpha Ltd owns 90% of the ordinary share capital of Beta Ltd. Meridian Logistics Plc also directly owns 60% of Gamma Ltd. All companies are UK resident and prepare accounts to 31 March.

Question: Which of the companies form a 75% group for Corporation Tax group relief purposes?

Answer options:

A.

Meridian Logistics Plc and Alpha Ltd only.

B.

Meridian Logistics Plc, Alpha Ltd, and Beta Ltd.

C.

Meridian Logistics Plc and Alpha Ltd.

D.

All four companies.

How to approach this question

Calculate the effective (direct x indirect) ownership percentages. For group relief, the parent must hold at least 75% effectively.

Full Answer

C.Meridian Logistics Plc and Alpha Ltd.✓ Correct
For Corporation Tax group relief (surrender of trading losses), a 75% group exists where a parent company owns at least 75% of a subsidiary, and has an effective interest of at least 75% in lower-tier subsidiaries. - Alpha Ltd: Meridian owns 80% directly. (In group). - Beta Ltd: Meridian owns 80% x 90% = 72% effectively. (Not in Meridian's group, though it is in Alpha's group). - Gamma Ltd: Meridian owns 60% directly. (Not in group). Therefore, the group relief group headed by Meridian Logistics Plc only includes Alpha Ltd.

Common mistakes

Assuming that because Alpha owns 90% of Beta, Beta is automatically in Meridian's group, forgetting to calculate the effective interest.
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