Corporation tax: Group loss relief

MonsoonMonsoon Font Of All KnowledgePosts: 4,071FMAAT, AAT Licensed Accountant
Hi

I presume there is an accounting policy that requires an amount of tax saved by the parent company to be disclosed in the subsidiary company's profit and loss account, when the subsidiary has surrendered its tax losses to the parent.

We've taken on a new client and last year this was done; CR Corporation Tax P&L, DR Loan from Parent Company (payment from parent for use of CT losses under group relief).

Various googling (such as here) has shown the same.

I understand the concept, it's just not something I've used before in practice, and I'm not sure how to calculate the value (I only ever deal with small companies' rate CT, marginal relief etc is a distant memory!).

We act for the subsidiary only, not the parent.

Is it acceptable to ask (words to the effect of): "Your tax loss is £x. Last year you transferred it to your Parent. Do you/your parent want to do the same this year? If so, please advise me of the value of tax saved by the parent so I may complete your accounts."

Presumably I'm not expected to calculate this amount as I am not the one doing the tax for the parent. Or am I (i.e. is it a standard calculation, I keep seeing 29.75% but am not sure why)? I'm happy to do the calc if I am expected to do it, or indeed subcontract it out to be on the safe side, and don't want to look like an eejit by asking them for a figure I am supposed to calculate.

What a good one for Friday afternoon eh?

Thanks in advance :)

Comments

  • PoodlePoodle Experienced Mentor Posts: 711Registered
    Hi

    Did you make any progress on this.

    Like you I have only ever played with this in a classroom scenario for taxation and not actually posted any entries for it classroom or otherwise

    Why would you credit CT in the P&L and post a debit to the loan? This would imply to me that something would be due back to the subsidiary at some time.
  • MonsoonMonsoon Font Of All Knowledge Posts: 4,071FMAAT, AAT Licensed Accountant
    Hi Poodle

    No, no cigar :/

    As far as I can tell, the double entry is to allow the parent to 'pay' the subsidiary for the use of the loss, thus reducing the loss on the subsidiary's P&L account (meaning dividends can be paid sooner once it goes into profit, amongst other things). I don't think there is anything that says this has to be done.

    My main problem is knowing how to calculate the value to post. I don't think I need to caluclate it (how would I know, I don't do the tax for the parent) but I don't know for sure and don't want to look like an idiot for asking the wrong thing!
  • MonsoonMonsoon Font Of All Knowledge Posts: 4,071FMAAT, AAT Licensed Accountant
    I thoroughly rate the CCH Helpline provided free when youre a MIP.

    They said: Yes it is acceptable to ask "Your tax loss is £x. Last year you transferred it to your Parent. Do you/your parent want to do the same this year? If so, please advise me of the value of tax saved by the parent so I may complete your accounts."

    I am not expected to know the value of the tax saved, phew.
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