As a business owner, navigating your way through the maze of tax laws and legislation can be a daunting task. One area that particularly causes confusion is the concept of Group Relief Surrender Agreement (GRSA). In this article, we will explain what a Group Relief Surrender Agreement is and how it can benefit your business.
What is a Group Relief Surrender Agreement?
Group Relief Surrender Agreement (GRSA) is an agreement between two or more companies where one company can surrender any of its unused trading losses and capital losses to another company within the same group for the purposes of reducing the tax liability of the recipient company. This agreement enables the recipient company to offset the losses incurred by the surrendering company against its own profits and reduce its tax liability.
In simple terms, it means that if one company in a group makes a loss, they can transfer that loss to a profitable company within the same group to reduce that company`s tax bill. This is especially useful for larger groups, where the different companies within the group may have different levels of profitability.
How does it work?
To qualify for a GRSA, the companies involved must belong to the same group. HM Revenue and Customs (HMRC) defines a group as two or more companies where one company has control over the other(s). Control means owning more than 50% of the shares in the company, or having the power to direct the affairs of the company.
The surrendering company must sign a written agreement surrendering its unused trading losses and capital losses to the recipient company. The written agreement must include details of the losses being surrendered, the period in which they were incurred, and the amount being surrendered.
The recipient company can use the surrendered losses to offset against its own profits for the same accounting period or any future period up to a maximum of five years. The amount of losses that can be surrendered is limited to the amount that would have been available for offsetting against the surrendering company`s own profits.
Benefits of GRSA
There are several benefits of a Group Relief Surrender Agreement:
1. Tax savings: By transferring losses from a loss-making company to a profit-making company, the taxable profits of the latter company will reduce, resulting in a lower tax liability.
2. Efficient use of resources: GRSA enables companies within a group to share losses and utilise resources more efficiently.
3. Flexibility: The surrendering company can choose which company to surrender the losses to, depending on which company would benefit the most.
4. Cash flow benefits: The recipient company can use the surrendered losses to reduce its tax liability immediately, resulting in cash flow benefits.
In conclusion, a Group Relief Surrender Agreement is an excellent way for companies within a group to share losses and reduce their overall tax liability. However, it is essential to ensure that the agreement is correctly drafted and complies with the HMRC rules and regulations. Seeking advice from a tax professional can help ensure that your group relief surrender agreement is optimised for your business operations and compliant with the tax authorities.