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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
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Debt cap: groups affected: introduction

Which groups are affected by the debt cap rules?

The worldwide debt cap rules provide an objective measure of the net financing expenses of the UK part of a group against the gross financing expenses of the worldwide group as a whole. The rules also contain a gateway test that compares the UK net debt of a group with the gross debt of the worldwide group. It follows that identifying the entities that make up the worldwide group and the UK part of that group is key the operation of the rules.

The legislation in TIOPA10/PART7 contains provisions that:

  • define what is meant by the worldwide group.
  • identify the ultimate parent of the worldwide group.
  • identify those group companies whose net financing expenses and net debt will be compared with the gross financing expenses and gross debt of the worldwide group (‘relevant group companies’).
  • identify those group companies whose net financing income can be disregarded where there has been a disallowance of financing expense amounts under the debt cap rules (‘UK group companies’).

TIOPA10/S337 defines ‘the worldwide group’ as any group of entities that is large (and contains one or more ‘relevant group companies’).

TIOPA10/S344(1) defines a group as being large if any member of the group is not a micro, small or medium sized enterprise as defined in the Annex to European Commission Recommendation 2003/361/EC of 6 May 2003 (see CFM90230).

It follows that the debt cap rules can apply to both UK headed and foreign headed large groups and will apply to large groups whose members are all tax resident in the UK.

For the full definition of ‘relevant group company’ see CFM90240, but in essence it is a company member of a group that is tax resident in the UK or has a permanent establishment in the UK and is a 75% subsidiary of the ultimate parent.

The full definition of ‘UK group company’ is given at CFM90250, but it is essentially any company member of a group that is tax resident in the UK or has a permanent establishment in the UK.