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HMRC internal manual

Company Taxation Manual

Groups & consortia: consortia - group income: election - to pay charges on income or loan relationship interest without accounting for IT

The provisions of ICTA88/S247 (4) do not apply in relation to payments made after 11 May 2001.

Previously, ICTA88/S247 (4) allowed a ‘consortium company’ to make a joint election with a member of the consortium of companies which owned it to pay charges on income or interest giving rise to a debit under the loan relationship legislation (FA96) in full without having to account for IT.

A ‘company owned by a consortium’ means:

  • a trading company owned directly by the consortium, or
  • a holding company owned directly by a consortium.

A ‘holding company’ is a company whose business consists wholly or mainly in the holding of shares or securities of companies that are:

  • its 90% subsidiaries, and
  • companies whose business consists wholly or mainly in the carrying on of a trade or trades.

A 90% subsidiary is a company whose parent directly owns at least 90% of its ordinary share capital (ICTA88/S838 (1)(c). ‘Ordinary share capital’ and ‘owned’ are defined at ICTA88/S832 (1) and ICTA88/S838 (3).

There is guidance on the meaning of ‘member’ of a consortium at CTM80915.

If the conditions of ICTA88/S247 (1)(b) are satisfied, an election may be made between the company owned by the consortium and one or more members of the consortium with minority shareholdings (that is less than 50%). This applies even if:

  • the ‘company owned by a consortium’ is also a 51% subsidiary of one of the other members of the consortium, and
  • both that other member and the company owned by a consortium are in a position to make an election under ICTA88/S247 (1)(a).

There is guidance on the conditions and procedure for elections at CTM80915 and on the recovery of IT where it should have been deducted at CTM80080.

The effect of an election is to take the relevant payments outside the machinery for deducting and accounting for IT on payments within ICTA88/S349. The CT treatment of the payments is not affected. So the payments remain deductible as charges on income against the profits of the paying company or result in a debit under the loan relationship legislation, and are included in the chargeable profits of the recipient company.