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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Debt cap: financial services groups: dealing with group companies which are not members of the group for the whole period of account

The calculation of UK trading income takes account of an any company that was a group company during a period of account of the worldwide group

TIOPA10/S266 (3) explains that UK trading income is made up of the sum of the trading income of every company that was a relevant group company or group securitisation company at any point during a period of account of the worldwide group. So even if a company is only a relevant group company for one day of that period of account its income is taken into account in the calculation of the UK trading income.

However, TIOPA10/S271 (6) ensures that where a relevant group company has an accounting period that does not match the period of account of the worldwide group, then only a proportion of the income of the relevant group company is taken into account in calculating the UK trading income.

Example

A worldwide group has four UK subsidiaries during the year ended 31 December 2012. All the companies are relevant group companies, but not all of them are relevant group companies for the whole of the year ended 31 December 2012.

  • Company A has an accounting period of 12 months ended 31 December 2012. It has trading income of £100m for that accounting period, of which £90m is derived from qualifying activities.
  • Company B has an accounting period of 12 months ended 31 December 2012 but only becomes a relevant group company on 1 April 2012. It has trading income of £60m for that accounting period, of which £56m is derived from qualifying activities.
  • Company C has an accounting period of 12 months ended 31 July 2013 and is acquired by the group and becomes a relevant group company on 1 August 2012. It has trading income of £120m for that accounting period, of which £96m is derived from qualifying activities.
  • Company D has an accounting period of 8 months ended 31 August 2012, when it is put into liquidation and ceases to be a relevant group company. It has trading income of £200m for that accounting period, of which £190m is derived from qualifying activities.

The calculation of the UK trading income is made as follows:

  Trading income for whole AP Income from QA for whole AP Trading income in UK trading income Income from QA taken into account
         
Company A £100m £90m £100m £90m
Company B £60m £56m £45m £42m
Company C £120m £96m £50m £40m
Company D £200m £190m £200m £190m
Total     £395m £362m

Both Company A and D have accounting periods that fall wholly within the period of account of the worldwide group and so no apportionment is needed.

Company B has the same accounting period as the worldwide group but is only a relevant group company for three quarters of its accounting period and so its trading income is apportioned by the same amount.

Company C has a different accounting period to that of the worldwide group and so its trading income is apportioned accordingly.