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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Debt cap: gateway test: UK permanent establishments

Balance sheets for UK permanent establishments that are relevant group companies

Where a foreign company carries on a trade in the UK through a permanent establishment, the permanent establishment will be a relevant group company if the foreign company satisfies the same conditions that a UK company does in terms of ownership by the group (see CFM90240).

The same rules regarding the start and end dates for establishing the net debt of a relevant group company for a period of account of the worldwide group apply to a UK permanent establishment. Where the foreign company prepares a separate balance sheet for the UK permanent establishment, the figures of net debt are derived from that balance sheet (TIOPA10/S265 (3)).

Where the UK permanent establishment does not have a separate balance sheet, the figures of net debt at the start date and end date for a period of account of the permanent establishment are taken as the amounts that would be disclosed in a balance sheet of the permanent establishment if one were prepared in accordance with GAAP. This means prepared in accordance with either UK GAAP or IAS. The company is not required to actually prepare a full audited balance sheet; it only needs to consider what the amounts of relevant liabilities (see CFM90710) and relevant assets (see CFM90720) would be at the start and end of the accounting period were a balance sheet prepared.