Definition
Consortium relief is a specialized form of group relief designed for consortia, allowing the companies within the consortium to share tax losses and optimize tax liabilities. A consortium is defined as existing if 20 or fewer companies each own at least 5% of the ordinary share capital of the consortium company, and together, they own at least 75% of the ordinary share capital. The key aspect of consortium relief is that it allows the surrendering of losses among consortium members proportional to each member’s shareholding in the consortium.
Key Features:
- Consortium Definition: A consortium is held to exist if 20 or fewer companies each own at least 5% of the ordinary share capital, cumulatively holding at least 75% of the shares.
- Loss Surrendering: Losses can be transferred between the consortium members and the consortium company.
- Restriction on Loss Surrendering: The amount of loss that can be surrendered is limited to the proportion of the claimant’s profits that corresponds with the surrendering company’s interest in the consortium.
- Non-Resident Members: Since 1 April 2000, members of a consortium are not required to be resident in the UK to qualify for relief.
Examples
Example 1:
Company A, B, and C form a consortium where Company A owns 30%, Company B owns 30%, and Company C owns 15% of Consortium Co. If Consortium Co. incurs a loss of £1,000,000:
- Company A can claim relief proportional to its 30% share, i.e., £300,000 of the loss.
- Company B claims relief proportional to its 30% share, i.e., £300,000 of the loss.
- Company C claims relief proportional to its 15% share, i.e., £150,000 of the loss.
Example 2:
A global consortium includes non-UK resident companies. For the year, a non-UK member incurs substantial losses, and those losses can still be relieved against the UK profits of other consortium members, thanks to the post-1 April 2000 rule.
Frequently Asked Questions (FAQs)
Q1: What is the primary benefit of consortium relief?
A1: Consortium relief primarily facilitates tax efficiency within a consortium by allowing member companies to surrender their losses against the taxable profits of other members.
Q2: How many companies can form a consortium?
A2: A consortium can be formed by up to 20 companies, provided that each holds at least 5% of the ordinary share capital of the consortium company, and together they hold at least 75%.
Q3: Do consortium members need to be UK residents?
A3: No, since 1 April 2000, consortium members no longer need to be UK residents to qualify for consortium relief.
Q4: How is the amount of loss that can be surrendered calculated?
A4: The amount of loss that can be surrendered is limited to the proportion of the claimant’s profits corresponding to the surrendering company’s interest in the consortium.
Q5: Can personal companies or partnerships be part of a consortium?
A5: Consortium relief generally applies to corporate structures, i.e., limited companies. Partnerships or personally-owned companies do not typically qualify.
Related Terms
Group Relief
Definition: Group Relief allows losses from one company to be offset against the profits of another within the same group, thereby reducing the taxable income of the group.
Tax Loss Carryforward
Definition: Tax loss carryforward lets a company use a tax loss from one year to offset future tax liabilities, thereby reducing taxable income in future years.
Corporate Tax
Definition: Corporate tax is a tax imposed on the profit of a corporation. The revenue earned is customarily classified and subject to tax per the jurisdictional corporate tax laws.
Online Resources
Suggested Books for Further Studies
- “Taxation: Finance Act 2022” by Alan Melville
- “UK Tax System: An Introduction” by Malcolm James
- “Corporate Finance and Taxation” by Steven Collings
Accounting Basics: “Consortium Relief” Fundamentals Quiz
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