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HMRC internal manual

Corporate Finance Manual

Debt cap: overview: legislation

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

Structure of legislation dealing with the debt cap rules

The rules for the debt cap are contained within TIOPA2010/Part7 and various Regulations.

Part 7 is structured as follows

  • Chapter 1 introduces the debt cap rules.
  • Chapter 2 contains the gateway test and the rules dealing with the financial services exclusion.
  • Chapter 3 explains how the total disallowed amount is calculated and how it is allocated among the relevant group companies of a group.
  • Chapter 4 provides the rules that determine particular amounts of finance income receivable by the UK group companies of a group that can be exempt from corporation tax when there has a been a disallowance under Chapter 3.
  • Chapter 5 contains rules that exempt certain intra-group finance income from corporation tax where the paying company is resident in the European Economic Area (apart from the UK) and that company is denied a deduction for tax purposes.
  • Chapter 6 contains anti-avoidance rules for the debt cap measure.
  • Chapter 7 defines what the terms financing expense amounts and financing income amounts mean and contains rules that allow certain amounts to be excluded from the debt cap calculations.
  • Chapter 8 defines the ‘tested expense amount’, which is the UK measure of net finance expense, and the ‘tested income amount’, which provides a limit on the amount of financing income that can be exempted under the debt cap.
  • Chapter 9 explains how the ‘available amount’, which is the group or worldwide measure of net finance expense, is calculated.
  • Chapter 10 contains interpretative and supplementary provisions.

In addition to Part 7, there are a number of Regulations that support the primary legislation. The Regulations are:

  • The Corporation Tax (Financing Costs and Income) Regulations 2009 - these regulations provide the detailed rules for making statements of disallowance (under Part 3); statements of disregard (under part 4); appointment of the authorised company that can make statements; and the allocation of disallowance, disregard and sharing of information where statements are not made.
  • The Corporation Tax (Exclusion from Short Term Loan Relationships) Regulations 2009 - these regulations provide rules that explain the circumstances under which finance arrangements will not be treated as short-term loan relationships.
  • The Corporation Tax (Acceptable Accounting Standards) Regulations 2009 - these regulations provide details of which accounting standards (other than IAS) are acceptable for the purpose of the debt cap rules.
  • The Tax Treatment of Financing Costs and Income (Available Amount) Regulations 2010 - these regulations include certain financing expenses within the available amount.
  • The Tax Treatment of Financing Costs and Income (Correction of Mismatches) Regulations 2010 - these regulations make adjustments to the available amount where accounting differences arise on the treatment of the same expense in the relevant company’s accounts and the consolidated accounts of the worldwide group.
  • The Tax Treatment of Financing Costs and Income (Excluded Schemes) Regulations 2013 -  these regulations describe certain arrangements to which the anti-avoidance rules in Chapter 6 of the primary legislation should not apply.

The debt cap was repealed by Finance (No.2) Act 2017 with effect from 1 April 2017 when it was superseded by the Corporate Interest Restriction.  Guidance on the new rules is available at:

Special rules apply where the period of account straddles 1 April 2017. See CFM93060 of the draft guidance for further details.