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HMRC internal manual

Corporate Finance Manual

Debt cap: group accounts: acceptable financial statements

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

Conditions for group financial statements to be ‘acceptable’

The consolidated accounts of a group are ‘acceptable’ - in other words, figures derived from these accounts can be used for debt cap purposes - if any of three conditions is met.

  • The financial statements are drawn up in accordance with international accounting standards (IAS). IAS is defined at CTA10/S1127(5) (formerly FA04/S50(2)). It encompasses International Accounting Standards, International Financial Reporting Standards and related interpretations, together with all present and future modifications to those standards when they become applicable.

Companies within the EU may have adopted IAS with particular ‘carve-outs’ decided by the European Commission, particularly with regard to IAS 39 (see CFM21020). While CTA10/S1127(6) (formerly FA04/S50(3)) makes it clear that both the modified and unmodified versions of International Financial Reporting Standards are ‘GAAP with respect to IAS accounts’, it is strictly not part of the definition of IAS. Thus there is special provision to ensure that the EU-compliant version of the standards is ‘acceptable’ - see below.

  • The financial statements are prepared in accordance with accounting standards specified in the Corporation Tax (Tax Treatment of Financing Costs and Income) (Acceptable Financial Statements) Regulations 2009 These regulations designate the EU-modified version of IFRS; UK GAAP; and the accounting standards of Canada, China, India, Japan, South Korea and the US as being acceptable. Some large groups accounting under UK GAAP will, in their consolidated accounts, adopt those accounting standards that are converged to IFRS. For periods beginning before 1 January 2015, statements prepared under ‘Old UK GAAP’ are nonetheless acceptable. For periods beginning on or after 1 January 2015, large groups will be required to apply IFRS or FRS 102 in preparing consolidated financial statements.
  • Even if a group’s accounts are prepared under different accounting standards, they will still be ‘acceptable’ if conditions set out in TIOPA10/S347(4)-(6) are met. These are designed to identify accounting standards that give a result comparable to IFRS. The financial statements must include the same companies in the consolidation as would be the case had IFRS been adopted. Furthermore, the amounts specified in TIOPA10/S332(1) that go to make up the available amounts must derive from the same transactions that would be recognised were IFRS to be employed. Finally, interest, amortisation of discounts and premiums, and amortisation of incidental costs of finance must be accounted for using an effective interest rate method (CFM21650).

Repeal of the debt cap rules

From 1 April 2017 the worldwide debt cap rules are repealed and replaced with the corporate interest restriction (CIR). 

Where consolidated financial statements are prepared for a period that straddles 1 April 2017, in applying the existing debt cap, a worldwide group period of account will be treated as ending on 31 March 2017. So long as the accounting policies used in the actual accounts are acceptable, the financial statements treated as having been used in the worldwide group period of account ending on 31 March 2017 are treated as having drawn up under those standards- F(No.2)A17/SCH5/PARA26(5) and (6).

Guidance on the new rules on the CIR is available online at:

https://www.gov.uk/government/publications/corporate-interest-restriction-draft-guidance