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HMRC internal manual

Corporate Finance Manual

Debt cap: calculating the disallowance of financing expense amounts: financing expense amounts of a relevant group company

Establishing the financing expense amounts

The net financing deduction is the sum of the relevant group company’s financing expense amounts for the period less the sum of the company’s financing income amounts for the period. So to work out the net financing deduction we need to know what the financing expense amounts are. This is a general introduction to financing expense amounts: TIOPA10/PT7/CH7 contains further rules that exclude certain amounts from being financing expense amounts. Guidance on the specific exclusions can be found at CFM92000+.

The financing expense amount of a company for a period of account of the worldwide group is any amount that meets one of the three conditions in TIOPA10/S313. An expense is a financing expense if, apart from the operation of Part 7 it would be:

  • brought into account as a trading or non-trading loan relationship debit (but see below for exceptions)
  • brought into account for the purposes of corporation tax as financing cost implicit in payments made under finance leases; or
  • brought into account for the purposes of corporation tax as financing cost payable on debt factoring or a similar transaction.

A loan relationship debit is not a financing expense if it is in respect of:

  • an impairment loss;
  • an exchange loss; or
  • a related transaction.

CFM91040 - 91070 gives further guidance and examples on determining finance expense amounts.

There are specific rules for calculating the financing expense and financing income of:

  • Group Treasury companies
  • Real Estate Investment trusts
  • Oil companies; and
  • Industrial and Provident societies.

Guidance on these rules is at CFM92500.

There is also guidance on intra-group short term finance at CFM92000.