Harrowfield Ltd: group relief, associated companies and capital allowances
Harrowfield Ltd draws accounts to 31 March. For the year to 31 March 2026 it forecasts trading profits of £420,000 before group relief and has no other income or gains. It acquired 75% of Fenwick Ltd on 1 October 2025. Fenwick made a trading loss of £210,000 in the year to 31 March 2026, broadly evenly incurred, and expects profits of about £150,000 in the following year. Harrowfield has also owned 100% of Marlow Ltd, a trading company, for many years, and 100% of Sedge Ltd, dormant since 2019. All companies are UK-resident. Harrowfield has already claimed £900,000 of annual investment allowance this year. Its finance director assumes the group will pay 19% on the first £50,000 of profits and that the whole £210,000 can simply be set against the £420,000.
1. How much of Fenwick's loss can actually be surrendered to Harrowfield, and how?
Read the worked answer
The group conditions are met (75% subsidiary, common control), but the overlapping accounting period rule bites: group relief is limited to the loss attributable to the part of Fenwick's accounting period during which it was a member of the group (CTA 2010 s.142).
- Fenwick was acquired on 1 October 2025, so only the six months to 31 March 2026 overlap.
- Loss evenly incurred: £210,000 × 6/12 = £105,000 available for group relief (use the actual post-acquisition figure if the loss was not even).
- The other £105,000 relates to the pre-acquisition period. It cannot be surrendered; it stays in Fenwick and is carried forward against future profits of the same trade (s.45).
The finance director's assumption that £210,000 can be set against £420,000 is therefore wrong by £105,000. Note also that the loss is a trading loss, so it can only be group relieved against Harrowfield's profits of the corresponding period - not against chargeable gains.
2. Compute Harrowfield's corporation tax with and without the group relief claim, taking associated companies into account, and advise whether to claim.
Read the worked answer
Associated companies: Fenwick (75% subsidiary, trading) and Marlow (100%, trading) are both associated; Sedge is dormant and therefore not. That is 2 associated companies, so the limits are divided by 3: lower £16,667, upper £83,333.
With the claim profits = £420,000 − £105,000 = £315,000, comfortably above the upper limit → 25% = £78,750. Without → £420,000 × 25% = £105,000. Saving £26,250 (25% of £105,000).
The finance director's 19% assumption is wrong twice over: there is no small profits rate at these profit levels at all, and the £50,000 limit would in any event have been cut to £16,667.
Claim or not? Claim. Left in Fenwick, the loss saves 25% against profits of £150,000 (Fenwick's own upper limit is £83,333, so it also pays 25%), but a year later, with no certainty the profits materialise and no ability to recover the relief. Group relief gives the same 25% now. Claiming is also administratively cheap - one election in the CT600A.
The analysis flips if Fenwick's future profits are expected to be small enough for the 19% rate to apply (below £16,667 on its divided limits), or if there is any prospect of Fenwick being sold - losses stay with Fenwick and are lost on a change of ownership with a major change in trade.
3. Fenwick wants to claim AIA on £250,000 of new, unused main-pool machinery bought in the same period. Can it, and what should the group do?
Read the worked answer
The £1m AIA is shared between companies under common control, so Harrowfield's £900,000 claim has already used most of the group's single allowance; only £100,000 remains for Fenwick and Marlow combined. A £250,000 AIA claim is not available.
But the machinery is new and unused main-rate plant, so it qualifies for full expensing - 100% first-year allowance with no financial cap. The correct answer is to claim full expensing on the whole £250,000 and leave the residual £100,000 of AIA for expenditure that does not qualify for full expensing (second-hand plant, special-rate integral features, cars).
Judgement points:
- Full expensing can create or increase a loss; a loss in Fenwick is only carried forward, so the extra relief may be deferred rather than saved. Compare claiming full expensing now against pooling at 18% and taking the relief when Fenwick is profitable.
- Full expensing does not apply to special-rate expenditure (integral features, long-life assets) - those get 50% first-year allowance and 6% writing down.
- If Harrowfield rather than Fenwick buys the machinery and hires it to Fenwick, full expensing is not available (plant must be for use in the purchaser's own qualifying activity), so keep the purchase in the company that will use it.