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HMRC, Tax & the Advantages of a Consortium Company

Author

Rachel Wagstaff

Rachel joined ETC Tax in January 2018 having worked in tax for the past 6 years.

What is a consortium company?

A consortium is a group of companies that collectively holds a 75% minimum holding of a company between them, with the beneficial ownership being held by at least two different members. Therefore, a company can still be held by a consortium even if it has individual shareholders that have up to a combined 25% holding.

In order to be a member of the consortium, each member must have at least a 5% holding, meaning that a consortium can have up to a total of 20 members.

There are a number of requirements for a company to be owned by a consortium. These are

• The consortium company must be a directly held trading company; or
• A holding company that’s business is to hold at least 90% of the shares of a trading subsidiary; or
• A trading company that is a 90% subsidiary of said holding company.

The conditions for a company to be a member of a consortium are more relaxed as the members of the consortium do not need to be trading companies, they just need to meet the minimum 5% holding condition and be UK related.
Example

In the above example Company F is a owned by a consortium made up of Company A, Company B and Company C. Mr D is not a member of the consortium as he is an individual and Company E doesn’t meet the 5% holding requirement so also fails to be a member of the consortium.

Understanding the Use of Losses by the Members

As these 4 company’s form a consortium, any losses made by one company can be surrendered to another company within the consortium, in the above case this means that losses can be transferred up and down the structure. The conditions for transferring losses between members stipulate that both the claimant and surrendering companies must be UK related.

Where UK related means a company that is either resident in the UK or carrying on a trade through a UK permanent establishment.

The amount of losses available to be transferred are calculated based on the percentage of shareholding that is held in the company owned by the consortium, and is also restricted to losses and profits arising in the same company period.

In the above example and assuming that each of the companies have a year end of 31 March;

Company A – profits £42,000
Company B – Profits £8,000
Company C – Profits £5,000
Trading Company F – Loss £19,000

Trading Company F losses can be utilised by the consortium as follows

Transferred to Company A – £5,510 of losses, reducing their taxable profits to £36,490.
Transferable to Company B – £8,550 but this is limited to the £8,000 profits made during the period (the use of transferable carry forward losses within a group is outside the scope of this article).
Transferable to Company C – £2,660 of losses, reducing their taxable profits to £2,340.

Note individual shareholders are not able to utilise losses in this way and therefore Mr D is not eligible to receive losses from Trading Company F.

Where a company is a member of a group but is also owned by a consortium, it is generally the case that group relief will be taken in priority to consortium relief.

Groups and consortiums should be carefully considered ahead of any restructuring exercise as the benefits of being able to transfer losses between company’s is a big advantage, particularly now that the rules on transferring losses have been relaxed. It also prevents losses from being stranded in one entity and profits being tax in another entity; and can greatly help cashflow.

For more information on company consortiums please speak to one of our help team of tax advisers. You can also read more about company and corporate tax issues below. You may also enjoy reading – Does your company qualify for R&D tax relief? And the tax issues surrounding a transfer of a business into a company…

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