For corporation tax purposes, groups of companies are divided into a number of categories and each category enjoys certain tax advantages. These advantages may include (Melville 2004):
* the transfer of trading losses from one group member to another, and
* the transfer of chargeable assets from one group member to another.
For tax purposes, two companies are associated if one of the companies is under the control of a third party (which may be an individual, a partnership or a company). Control over a company is deemed to accompany (Lymer & Hancock 2002):
* ownership of over 50 % of the company's issued share capital, or
* ownership of over 50 % of the company's voting power, or
* entitlement to over 50 % of the company's income, if all of that income were to be distributed, or
* entitlement to over 50 % of the company's assets, if the company were wound up.
The main consequences of two or more companies associated with one another is that the starting rate and small companies rate upper and lower limits are divided between the companies.
There are six companies in the group namely Britannia Plc, Brunswick Ltd, Balfour Ltd, Biscayne Inc., BlueBay Ltd and BlackRock Ltd. There are all under common control (i.e. shareholdings of over 50%).
However, BlueBay Ltd has not starting trading and would not count as an associated company. On the other hand, Biscayne Inc would be counted as an associated company even though it is resident overseas.
Therefore, there are five associated companies and the limits would be divided by five (see Appendix I).
Group relief consists of the surrender of trading losses and/or certain items by one member of a 75 % group (the "surrendering company") to another member of the...