group
n. In company law, a group is defined by the Financial Reporting Council, under the authority of the Companies Act 2006 s 464, as a parent company and all the entities it controls, including unincorporated entities such as partnerships; “control” is defined as “the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities”. It is for the directors of the parent company to determine which other entities they have the power to govern. A group of companies (other than a small company group) is required to produce consolidated accounts showing the activities of the group as a whole.

In tax law, a group is defined more tightly. For corporation tax, a group is a parent company (“P”) plus all companies over 50% of whose shares are beneficially owned directly or indirectly by P (Corporation Tax Act 2010 s 1154). For income tax, the definition is P plus all companies in which P has majority voting power given by shareholdings, but also includes a company whose “affairs … are conducted in accordance with P’s wishes” (Income Tax Act s 995). For capital gains tax, the Taxation of Chargeable Gains Act 1992 s 170(3)–(6) gives an exhaustive definition that, in addition to majority voting power, includes the right to receive over one half of the assets of a subsidiary in the event of a winding-up.

When the links are made by share ownership of 75% and over, a company in a group can reduce its liability to corporation tax by using losses suffered by another member of the group; assets can be passed amongst the companies without a charge on any capital gain arising and transfers of land are exempt from stamp duty land tax.

The difference between the accounting definition of group and the tax law definitions of a group is most likely to occur when a corporate minority shareholder exercises de facto control by appointing the directors, or can determine terms of business.

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