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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: worldwide gross debt derived from group consolidated financial statements

The gateway test comparator for the worldwide group is drawn from the group’s consolidated financial statements

The gateway test involves a comparison of the UK net debt of a group with the gross debt of the consolidated group. TIOPA10/S 264 (1) states that the figure of worldwide gross debt is the average of the sum of the group’s relevant liabilities at

  • the end of the period of account of the worldwide group; and
  • the end of the previous period of account of the worldwide group.

The end of the previous period is a proxy for the first day of the period of account being considered. CFM90700 provides more guidance on how the worldwide gross debt is calculated.

It will be unusual to find cases where a group does not have a previous period of account as mergers are generally accounted for as a takeover by one group of another. In cases where there is no previous period of account, the group should take instead the relevant liabilities from the start of the period of account under consideration, using figures that would be disclosed in a balance sheet if one were drawn up for that day.

The relevant liabilities are the amounts that are disclosed on the group’s consolidated balance sheets at the end of period of account under consideration and at the end of the previous period of account. An amount disclosed on a balance sheet does not have to be visible on the face of the balance sheet or in notes to the balance sheet; an amount is disclosed on a balance sheet if it is included in the assets or liabilities reported on the balance sheet.

CFM90400 onwards contains guidance that explains the circumstances under which a group has consolidated financial statements that are acceptable for the purposes of applying the various calculations set out in the rest of TIOPA10/PART7. The legislation that sets out the particular rules to be followed, TIOPA10/S 346 and S349 apply to the calculation of the worldwide gross debt. In other words the gateway test has to be applied using a figure of worldwide gross debt that has been drawn from acceptable consolidated financial statements.