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HMRC internal manual

Corporate Finance Manual

Debt cap: group accounts: financial statements not acceptable

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

International accounting standards as default

It is likely in practice that the consolidated financial statements of most large groups will be prepared under accounting policies that are ‘acceptable’ for TIOPA10/PT7purposes. If they are not, however, it is necessary to decide whether the figures disclosed in the groups’ accounts are ‘materially different’ from those that would be disclosed in statements prepared under international accounting standards (IAS) (TIOPA10/S347(1)).

If the amounts are not materially different, the figures used for debt cap purposes are still drawn from the accounts. But if there is a material difference, you must use the figures that would have been given had IFRS accounts been drawn up for the period in question.

‘Materially different’ is not defined, but consideration of materiality should be based on the IASB Framework: The 2010 edition states, ‘Information is material if omitting or misstating it could influence the decisions that users make on the basis of the financial statements’ (QC.11). In the debt cap context, a difference will be material if it means the difference between a disallowance or no disallowance, or if one set of figures would lead to a significantly greater disallowance than the other.

HMRC staff should consult a HMRC accountant in any case where group accounts are prepared under ‘non-acceptable’ accounting standards, but it is claimed that any resulting differences from IFRS are immaterial.

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From 1 April 2017 the worldwide debt cap rules are repealed and replaced with the corporate interest restriction (CIR).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