In the UK, how does tax consolidation work?

In the UK, how does tax consolidation work?

• A. Only losses of the current accounting period can be surrendered
• B. Capital losses can be surrendered between entities
• C. All losses can be surrendered regardless of type or period
• D. Only losses of the current accounting period can be surrendered and capital losses cannot be surrendered (only income)

Answer: (D)

In the UK, tax consolidation within a group is handled by group relief, which lets a loss-making member surrender its current-year trading losses to another group member with profits in the same accounting period to reduce the group's overall tax bill. The important point is that only losses arising in the current accounting period can be surrendered, and capital losses are not eligible for this surrender. So losses from earlier periods or capital losses can’t be offset against another group member’s profits under this mechanism. In practice, the recipient’s profits for that period are reduced by the surrendered amount, up to the limit of the losses available for surrender, with the usual group relief conditions applying.

In the UK, tax consolidation within a group is handled by group relief, which lets a loss-making member surrender its current-year trading losses to another group member with profits in the same accounting period to reduce the group's overall tax bill. The important point is that only losses arising in the current accounting period can be surrendered, and capital losses are not eligible for this surrender. So losses from earlier periods or capital losses can’t be offset against another group member’s profits under this mechanism. In practice, the recipient’s profits for that period are reduced by the surrendered amount, up to the limit of the losses available for surrender, with the usual group relief conditions applying.