Accounting for group relief payments

When one group company pays another for tax losses surrendered as group relief, the payment is ignored for corporation tax as long as it does not exceed the amount of the losses surrendered (section 183 CTA 2010). FRS 102 has no specific rule for these payments, so each company sets an accounting policy; the approach that best reflects the substance is to treat the payment as part of the tax charge, a cost in the claimant and a tax credit in the surrendering company. Each company’s tax note then explains any difference between its tax charge and the standard rate.

What is a payment for group relief?

Group relief lets a company in a 75% group surrender its losses to another group company, which deducts them from its own profits. The mechanics are explained in how group relief for losses works. HMRC’s Company Taxation Manual at CTM80145 says no payment to the surrendering company is required. Groups often agree one anyway, so that the company whose losses created the saving is compensated, which keeps each company’s results meaningful to its own lenders, minority shareholders or future buyer.

Section 183 of the Corporation Tax Act 2010 says a payment made under an agreement between the two companies, which does not exceed the total amount of the agreed loss amounts, is not taken into account in computing either company’s profits or losses for corporation tax, and is not a distribution. CTM80145 stresses that the ceiling is the amount of the loss, not the tax value of the relief. A payment equal to the tax saved therefore sits well within the limit.

Does FRS 102 say how to account for it?

No. Section 29 deals with income tax, defined in the FRS 102 glossary as all domestic and foreign taxes based on taxable profits, but it does not mention group relief or payments for it. Where a standard does not specifically address a transaction, paragraph 10.4 requires management to develop a policy that gives relevant and reliable information reflecting the economic substance, and paragraph 10.5 points first to requirements dealing with similar and related issues. Paragraph 10.7 then requires the policy to be applied consistently.

The payment is not itself a tax paid to HMRC, but it exists only because of the tax system and is priced by reference to tax. Treating it as part of the tax line keeps the claimant’s total tax charge close to what it would have paid alone, and gives the surrendering company a credit for the value its losses created. Whichever policy is adopted, it should be stated in the accounting policies note and used by every company in the group.

How does the claimant company record it?

The claimant’s current tax liability is calculated after the group relief claim, so it is lower than on a standalone basis. The agreed payment is then recognised as part of tax expense in profit or loss, with a matching liability to the surrendering company, normally within amounts owed to group undertakings. When paid, the liability is settled. Paragraph 29.26 requires the major components of tax expense to be disclosed separately, and showing the payment as its own line within current tax lets the reader see the HMRC figure and the group payment apart.

Because the claim and the payment may be finalised after the accounts are signed, the year end figures are often based on the expected claim. Group relief claims can be made or withdrawn up to the first anniversary of the claimant’s filing date (CTM97045), so later changes are adjustments to current tax of prior periods, which paragraph 29.26(b) identifies as a separate component.

How does the surrendering company record it?

The surrendering company recognises the amount receivable as a tax credit in profit or loss, with a debtor due from the claimant. Its own current tax for the period is nil, since it has a loss. Losses that are surrendered cannot also be carried forward: CTM80145 confirms that relief cannot be given more than once for any amount. Any deferred tax asset the company had recognised for those losses must therefore be released, and the unused losses figure disclosed under paragraph 29.27(e) should reflect only losses still available. For more on recognising loss assets, see deferred tax under FRS 102.

How do the payments show up in each company’s tax note?

Paragraph 29.27(b) requires a reconciliation between the tax expense in profit or loss and the profit or loss before tax multiplied by the applicable tax rate. Group relief is a frequent reconciling item, and how it appears depends on whether a payment is made.

• Payment at the full tax value. The claimant’s lower HMRC liability is offset by the payment, so there is little or nothing to reconcile. The surrendering company’s credit equals its loss at the tax rate, so again the reconciliation is clean.
• No payment. The claimant shows a reconciling item such as “group relief claimed for nil consideration”, reducing its effective rate. The surrendering company shows “losses surrendered for no payment” increasing its tax charge from an expected credit to nil.
• Partial payment. Each company reconciles the difference between the payment and the full tax value.

The layout of the reconciliation is covered in the tax reconciliation note.

What does this look like with numbers?

Illustration only. The main rate of corporation tax for the financial year beginning 1 April 2026 is 25%. Assume both companies pay at that rate and there are no other adjustments. Parent P has taxable profits of £400,000. Subsidiary S has a trading loss of £100,000 and surrenders all of it to P.

Item	Payment of £25,000	No payment
P: corporation tax on £300,000	£75,000	£75,000
P: payment for group relief	£25,000	Nil
P: total tax charge	£100,000	£75,000
P: reconciling item	None	(£25,000) group relief claimed for nil consideration
S: tax credit	£25,000	Nil
S: reconciling item	None	£25,000 losses surrendered for no payment

P could pay up to £100,000, the amount of the loss, and still have the payment ignored for tax under section 183. Anything above £100,000 falls outside that section.

What about related party disclosures and group accounts?

A payment for group relief is a transaction between related parties. Paragraph 33.1A says the related party disclosures in paragraph 33.9 need not be given for transactions between group members, provided any subsidiary that is a party to the transaction is wholly owned. Where S has outside shareholders, the payment and any balance outstanding must be disclosed. See the wholly owned group exemption.

In the consolidated accounts the payment, the receivable and the payable are intragroup and are eliminated. The group tax charge simply reflects the tax actually due to HMRC.

What mistakes come up most often?

• Recording the payment as a management charge or other expense, which distorts operating profit and hides the link to tax.
• Agreeing payments above the amount of the losses surrendered, which takes the excess outside section 183.
• Paying without an agreement between the two companies about the losses, which section 183 requires.
• Keeping a deferred tax asset for losses that have been surrendered.
• Treating payments one way in the claimant and another in the surrendering company, so the group’s policy is inconsistent.
• Forgetting that group relief changes the claimant’s corporation tax liability as well as its profit and loss charge; see current tax accounting.

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Related Accountapedia entries

• SDLT group relief
• Group Relief for Corporation Tax
• How group relief for losses works
• Property let to a group company: accounting choice
• VAT group registration

Sources

• legislation.gov.uk: Act 2010 c. 4, section 183
• GOV.UK: Manual page CTM80145
• GOV.UK: Manual page CTM80151
• GOV.UK: Manual page CTM97045
• Financial Reporting Council: FRS 102 September 2024 tmKYWO6
• GOV.UK: Rates and allowances corporation tax

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.