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HMRC internal manual

Corporate Finance Manual

Debt cap: groups affected: UK group companies

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

What is a UK group company?

UK group companies are those companies whose financing income can under certain conditions be disregarded under the debt measure (see CFM91200).

A UK group company is defined in TIOPA10/S345 as a company that is a member of the worldwide group (CFM90260) and that is either resident in the UK or carries on a trade in the UK through a permanent establishment. All relevant group companies will therefore also be UK group companies (but not vice versa).

The question of whether a company is a member of the worldwide group is decided by reference to accountancy definitions (see CFM90260). As a result, in the vast majority of cases if the results of a UK resident company, or a company with a UK permanent establishment, are included in the consolidated financial statements prepared by the ultimate parent of the group, it will be a UK group company.

However, there will be some limited exceptions. For example, under IFRS 5 a company may be required to account for the shares of a subsidiary as an asset available for sale if their sale is highly probable. In consequence, the full results of the subsidiary might not be required to be included in the consolidated accounts of the group of which it is a member. But it would still be a subsidiary under the International Accounting Standards definition as long as the control requirements continued to be met and would therefore continue to a be a member of the worldwide group until sold. HMRC staff should consult their local International Issues Manager in cases of doubt or difficulty over whether a company is a member of the worldwide group.

Although an overseas company with a UK permanent establishment can be a UK group company, it will only the financing income of the permanent establishment that is capable of being disregarded. This is because the measure of financing expenses and income in the debt cap rules is based on those amounts that are brought into account for UK tax purposes.