Definition
In accounting and corporate finance, a group refers to a parent undertaking and its subsidiary or subsidiaries. Under UK tax law, a group is formed when one company (the parent) holds more than 50% of the shares in another company (the subsidiary). This shareholding usually pertains to the voting share capital.
Tax rules apply differently to group structures. For example, the availability of lower rates of corporation tax is often restricted in a group context. Additionally, when share ownership exceeds 75%, assets can be transferred between companies within the same group without incurring a capital gains tax charge.
Examples
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XYZ Corporation and its various subsidiaries:
- XYZ Corporation owns 60% of ABC Ltd.
- XYZ Corporation owns 80% of DEF Ltd.
In this case, XYZ Corporation forms a group with both ABC Ltd and DEF Ltd.
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Tech Innovations Group:
- The parent company, Tech Innovations Inc., owns 51% of NextGen Solutions.
- Tech Innovations Inc. owns 70% of FutureTech Ltd.
Here, Tech Innovations Inc. creates a group with NextGen Solutions and FutureTech Ltd.
Frequently Asked Questions
What constitutes a group for tax purposes in the UK?
A group for tax purposes is formed when a parent company holds over 50% of the shares in another company, primarily in terms of voting share capital.
How does the UK tax law affect groups?
UK tax law imposes restrictions on the availability of lower rates of corporation tax for groups. However, companies with over 75% share ownership links can transfer assets among themselves without a capital gains tax charge.
Can groups file consolidated financial statements?
Yes, groups typically file consolidated financial statements that present the financial position and results of the parent and all its subsidiaries as a single entity.
What is Group Relief?
Group relief is a mechanism that allows losses from one company within a group to be offset against the profit of another company within the same group, providing a potential tax benefit.
What is a small group?
A small group, under UK law, is one that qualifies under specific criteria related to size, such as turnover, balance sheet total, and number of employees. These criteria can vary but generally apply thresholds around small business standards.
Related Terms
Consolidated Financial Statements
Financial statements that present the assets, liabilities, equity, income, expenses, and cash flows of a parent company and its subsidiaries as a single entity.
Group Relief
A tax mechanism in the UK that allows losses from one group company to be transferred to another group company to offset profits and reduce overall tax liability.
Medium-sized Group
A group that qualifies under UK law as medium-sized based on specific criteria related to turnover, balance sheet total, and number of employees.
Small Group
A smaller group under specific legal criteria related to turnover, balance sheet total, and number of employees.
Online Resources
- HMRC Corporate Tax Manual: HMRC Corporate Tax
- ICAEW Guidance on Groups: ICAEW Guide
Suggested Books for Further Studies
- “UK Tax Legislation: 2021-2022” by IFS
- “Advanced Corporate Finance” by Joseph Ogden, Frank C. Jen, and Philip F. O’Connor
- “Principles of Group Accounting under IFRS” by Andreas Krimpmann
Accounting Basics: “Group” Fundamentals Quiz
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