Section C

Eco-Dynamics Ltd is a UK resident company manufacturing green technology. For the 12-month accounting period ended 31 March 2024, the company has the following results:

• Trading Loss: (£450,000)
• Property Business Income: £30,000
• Chargeable Gain on sale of a warehouse: £80,000
• Qualifying Charitable Donations paid: £10,000

Eco-Dynamics Ltd owns 80% of the ordinary share capital of Solar-Tech Ltd, a UK resident company. For the same accounting period ended 31 March 2024, Solar-Tech Ltd has Taxable Total Profits (TTP) of £200,000.

Eco-Dynamics Ltd wishes to utilize its trading loss as quickly as possible and minimize the overall tax burden for the group. In the previous accounting period (ended 31 March 2023), Eco-Dynamics Ltd had Taxable Total Profits of £150,000.

Required:
Explain and calculate the optimal use of Eco-Dynamics Ltd's trading loss of £450,000. Your answer should show the revised Taxable Total Profits for both Eco-Dynamics Ltd and Solar-Tech Ltd for the year ended 31 March 2024, and state the amount of loss (if any) carried forward.

Note: Assume the current Corporation Tax main rate is 25%. You must justify the order of loss reliefs chosen.

**1. Group Relationship:** Eco-Dynamics Ltd owns 80% of Solar-Tech Ltd. This forms a 75% group, allowing the surrender of trading losses via Group Relief. **2. Current Year Offset (s.37 CTA 2010):** To utilize losses as quickly as possible, Eco-Dynamics must first make a claim to offset the trading loss against its own Total Profits for the current year. Total Profits = Property Income (£30,000) + Chargeable Gain (£80,000) = £110,000. Loss utilized in current year = £110,000. Revised TTP for Eco-Dynamics Ltd (y/e 31 Mar 2024) = £0. *Note: The Qualifying Charitable Donations of £10,000 cannot be used to create or augment a loss and are therefore wasted.* Remaining Trading Loss = £450,000 - £110,000 = £340,000. **3. Group Relief (s.99 CTA 2010):** Eco-Dynamics can choose to surrender the remaining loss to Solar-Tech Ltd or carry it back. Surrendering to Solar-Tech saves tax immediately at 25% (assuming Solar-Tech pays the main rate). Solar-Tech Ltd TTP = £200,000. Eco-Dynamics surrenders £200,000 of its loss to Solar-Tech Ltd. Revised TTP for Solar-Tech Ltd (y/e 31 Mar 2024) = £0. Remaining Trading Loss = £340,000 - £200,000 = £140,000. **4. Carry Back (s.37 CTA 2010):** The remaining loss of £140,000 can be carried back 12 months to the accounting period ended 31 March 2023. Previous year TTP = £150,000. Loss carried back = £140,000. Revised TTP for Eco-Dynamics Ltd (y/e 31 Mar 2023) = £10,000. This will generate a tax refund. **5. Summary:** - Eco-Dynamics Ltd TTP (y/e 31 Mar 2024): £0 - Solar-Tech Ltd TTP (y/e 31 Mar 2024): £0 - Loss carried forward: £0 (fully utilized).