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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Debt cap: calculating the disallowance of financing expense amounts: introduction

Disallowing finance expense - the basic debt cap structure

TIOPA10/PT7/CH3 contains the legislation that disallows part of the finance expense of relevant companies if the debt cap rules apply to the group. It applies for the relevant period of account if the tested expense amount exceeds the available amount.

The basic rule is that if the tested expense amount (broadly, the net financing costs of relevant group companies) exceeds the available amount (broadly, the gross financing costs of the worldwide group) for any period of account of the worldwide group, the excess UK financing costs are disallowed. The tested expense amount is explained at CFM91020 and the available amount at CFM92400+.

The difference between the tested expense amount and the available amount is called the total disallowed amount.

Chapter 3 applies to allocate the total disallowed amount between relevant group companies, so that part or all of their finance expenses is disallowed - see CFM91600.