EXPLANATORY NOTE

This clause provides for the recovery of tax arising from a reduction in the amount available for surrender under the group relief rules. Where the amount of group relief surrendered to a company has been reduced, and the company does not pay the additional tax that arises as a consequence, the outstanding tax may be recovered from other companies in the group, to the extent that they have benefited from the surrender. They may, in turn, recover the tax from the defaulting company. The Clause also provides an extended time limit for an assessment on the defaulting company. These changes apply for accounting periods ending on or after 1 July 1999 and are in line with similar provisions under the CT Pay & File system.

_____________________

Subsection (1) provides for Part VIII of Schedule 18 to FA 1998, which deals with claims for group relief, to be amended.

Subsection (2) makes minor changes to the terminology used in the provision dealing with the consequences of a reduction in the amount available for surrender as group relief. The effect of the changes is to align the terms used with those in the rules determining the amount which may be claimed as group relief (paragraph 69 of Schedule 18).

Subsection (3) inserts new paragraph 75A into Schedule 18.

Sub-paragraph (1) of new paragraph 75A provides for the paragraph to apply where -

a company (the chargeable company) has claimed group relief from a surrendering company, and

the chargeable company becomes liable to tax following receipt of -

a notice of withdrawal of consent, or a copy of a new notice of consent, issued under paragraph 75(3) because the total amount available to surrender has been reduced, or

a copy of a notice from the Inland Revenue under paragraph 75(4). Such a notice directs which claims in respect of the surrendering company’s losses are to be reduced or be ineffective. It is issued only where the surrendering company fails to withdraw consent itself.

New paragraph 75A(2) provides that, if any of the tax is unpaid six months after the chargeable company’s time limit for claims (defined in new paragraph 75A(6)), the Inland Revenue may assess, in the name of the chargeable company, any other company that has obtained group relief as a result of the surrender.

New paragraph 75A(3) sets the time limit for making an assessment under sub-paragraph (2) at two years after the chargeable company’s time limit for claims.

New paragraph 75A(4) limits the amount of the assessment. It must not exceed -

the amount of the unpaid tax, or

if less, the amount of tax which the assessed company saves by virtue of the surrender.

New paragraph 75A(5) provides that a company that has been assessed in these circumstances may recover an equivalent amount from the chargeable company, together with any interest it has paid on the tax.

New paragraph 75A(6) defines the chargeable company’s time limit for claims as the last of the dates (mentioned in paragraph 74(1)) on which it could make or withdraw a claim for group relief for the accounting period for which the claim in question is made.

Subsection (4) amends paragraph 76 of Schedule 18 (assessments to recover excessive group relief). A new sub-paragraph is inserted which extends the time limit if an assessment is made because a company fails, or is unable, to amend its tax return under paragraph 75(6) to reflect a reduction in the amount of group relief available.

In these circumstances, an assessment will not be out of time if made within one year from -

the date on which the surrendering company gives notice of the withdrawal of consent, or if later, sends a copy of a new notice of consent under paragraph 75(3), or

the date on which the Inland Revenue send the claimant company a copy of the notice directing that the amount surrendered is reduced under paragraph 75(4).

Subsection (5) amends section 87A(3) TMA 1970, which provides for interest to be charged on unpaid corporation tax assessed on other persons. A cross reference to new paragraph 75A(2) replaces the existing reference to the equivalent CT Pay & File provision.

Subsection (6) provides that section 96 FA 1990 will cease to have effect. This section provides rules, for CT Pay & File accounting periods, with the same general effect as those enacted by paragraph 75 of Schedule 18, and now proposed by new paragraph 75A.

Subsection (7) provides for the clause to have effect in relation to accounting periods ending on or after 1 July 1999.

______________________

Clause 80 to 84, and Schedule 11, correct omissions, and make the minor and consequential amendments, to remedy minor technical defects that have been identified since the introduction, by Finance Act 1998, of core provisions for CTSA, payment of corporation tax by instalments and the abolition of ACT. A summary of these major changes is provided in the Background to the note on Clause 80.

The group relief rules enable companies to obtain relief for trading and some other losses by surrendering those losses to other companies in their groups. The rules also cover consortia.

The rules for making and withdrawing claims to group relief under CT Pay & File are mainly contained in Schedule 17A ICTA 1988. For accounting periods ending on or after 1 July 1999, they have been replaced by broadly equivalent rules contained in Part VIII of Schedule 18 FA 1998.