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HMRC internal manual

Corporate Finance Manual

Debt cap: financial services groups: the meaning of ‘substantially all’

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

TIOPA10/S266 (2) requires that ‘substantially all’ of the trading income must be derived from qualifying activities

It would be very unusual for a financial services group to have 100% of its trading income derived from qualifying activities; groups have diverse business operations and a condition based on 100% qualifying activity would have little practical impact. However, a balance is needed as the financial exclusion should only apply to groups whose business activities require debt as part of their operating models.

TIOPA10/S266 (2) refers to substantially all the trading income (either the worldwide trading income or UK trading income) being derived from qualifying activities. The expression ‘substantially all’ is not defined in legislation. In practice HMRC will interpret the expression as meaning around 90%. A degree of flexibility can be applied; for example if a group consistently has more than 90% of its trading income being derived from qualifying activities, but finds in one year it is just below 90% then the group would be treated as meeting the ‘substantially all’ test.