The test for UK companies to form a group for group relief purposes is that, broadly, 75% of ordinary share capital must be under common ownership. Ordinary shares are any shares that are not fixed-rate preference shares.

As a result of the financial crisis, it is becoming increasingly common for subsidiaries of banking groups to issue non-cumulative preference shares (shares that do not carry a right to a dividend if paying one would risk breaching the bank's capital requirements). Such shares are popular since they increase the banking group's Tier 1 capital.

Concerns have been raised that these shares may not be fixed-rate preference shares and consequently may "de-group" part of the banking group. The new legislation will change the types of preference share that are excluded when considering whether companies form a group to make it clear that non-cumulative preference shares are not ordinary share capital.

Although these changes seek to help banking groups, they apply to all corporate groups and introduce new concepts that will need to be considered by all companies that have issued or are thinking of issuing, fixed-rate preference shares. The changes apply to all accounting periods beginning on or after 1 January 2008 subject to an opt out for pre-18 December 2008 shares.

The second legislative change will allow a company which computes its profits and losses for tax purposes in a currency other than sterling, to carry back or forward losses and to convert those losses into sterling at the same exchange rate as the profits they are being used to offset are converted.

Although there are some technical concerns with the draft legislation (particularly the new preference shares rules), it is welcome that the UK Government is trying to address tax issues which have come to prominence as a result of the credit crunch.