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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
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Debt cap: financial services groups: qualification test based on income from business activities

The financial services exclusion is tested by establishing the amount of trading income that is derived from qualifying activities

The financial services exclusion rules work by considering how much of the income of either the worldwide group or the relevant group companies of a worldwide group (treating the relevant group companies as a mini-consolidated group) consists of income derived from qualifying activities. The income (referred to as the trading income) is taken from the consolidated financial statements of the worldwide group, or the financial statements of the relevant group companies.

The measurement of how much of a group’s (or the UK part of the group’s) activities are derived from qualifying activities could be based on a number of different factors, or a combination of several. A test based on the contribution of income from qualifying activities to the trading income as a whole is considered to provide the best indicator over the course of a period of account.

In theory any group could consider how much of its trading income is derived from qualifying activities, but any non-financial services group will find its income from qualifying activities (likely to be only interest from money held on deposit) will be negligible when compared with all of its trading income (which will include all income from its main business activities).

CFM90870 explains what the qualifying activities are.

CFM90940 explains how to establish what trading income is taken into account when looking at the group as a whole.

CFM90950 explains how to establish what trading income is taken into account when looking at just the relevant group companies.

Once a worldwide group has established what its trading income is for a period of account, it then works out how much of that income is derived from qualifying activities during that period.