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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Debt cap: group accounts: groups merging and de-merging

Groups merging and de-merging

In FA12 rules were introduced in section 348A TIOPA to provide a framework for the debt cap computation when groups merge or de-merge. The rules do not apply to situations where single companies join or leave a worldwide group as the rules for calculating the gateway test, financing expense, financing income, tested expense amount and tested income amount already deal with this situation. The FA12 rules apply when:

  • there is a relevant event
  • as a result of the relevant event there is the change in the ultimate parent of a worldwide group, or
  • a change in the ultimate parent of any other group that is party to the relevant event
  • financial statements are drawn up, or would be drawn up under section 348 for a period of account that includes the relevant event - this is the straddling period.

A relevant event is the merger or de-merger of a group. If these conditions apply then section 348A operates so that the debt cap rules apply as if:

  • financial statements have not been drawn up by the worldwide group
  • section 348 does not apply to require the creation of the non-existent financial statements.

Instead the worldwide group is treated as if it had drawn up two sets of financial statements, one set for the period before the relevant event up to the date of the relevant event and another set from the relevant event to the end of the period of account.

HMRC staff should be aware that preparing two sets of financial statements might involve considerable work in some cases, and should not be over-prescriptive in their approach. It may be possible to calculate the debt cap position before and after the relevant event using management accounts or other accounts or documents prepared for the relevant event.

Examples of relevant events and their effect on the straddling period are in CFM90485 - CFM90490 below.