ACCA Advanced Taxation (ATX) Practice Exam

When is a company considered to have 'left' a group for group relief purposes?

1. When it is sold

2. Once arrangements for sale are in place

3. When it stops trading

4. When less than 50% of shares are owned

The correct answer is: Once arrangements for sale are in place

A company is considered to have 'left' a group for group relief purposes when arrangements for its sale are in place. This understanding hinges on the taxation rules governing group relief, which allows groups of companies to offset their taxable profits against the losses of another company within the same group. In the context of tax regulation, particularly under the UK's Corporation Tax Act, the concept of a company leaving a group is linked to the potential transfer of control and ownership. When arrangements for sale are underway, it indicates that the company is on the verge of changing hands, which effectively impacts its affiliation with the group for tax purposes. The timing of this change is essential because it can affect the ability to claim group relief. The other options do not align with the legislative framework surrounding group relief. For instance, a company that is sold may still be within the group until the completion of the sale process, and simply stopping trading does not inherently mean a company has left the group, especially if it continues operations under the same ownership structure. Likewise, the ownership percentage does not directly determine when a company has left the group; instead, control and intention behind the ownership changes play a significant role in this context.