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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: different accounting reference dates

What if the relevant group company does not have the same period of account as the worldwide group?

If a relevant group company does not have the same period of account as the worldwide group then the financing expense of the relevant group company is adjusted. For periods of account of the worldwide group ending before 17 July 2012 the adjustment is made by reducing the financing expense amount by the proportion of the accounting period of the relevant group company that falls outside the period of account of the worldwide group. See Examples 1 and 2 below.

This was changed in FA12 for periods of account ending on or after 17 July 2012. From this date the adjustment is calculated by reference to such proportion as is just and reasonable. The financing expense can, if just and reasonable, be reduced to nil for part of the period of account. This gives groups some flexibility to make sure that financing expenses are allocated to the correct part of the period of account. See Example 3 below.

Example 1

The accounting period of Company F is the year ending 30 September 2014 and its financing expense amount for the period is £660,000. The accounting period for its worldwide group is the year ended 31 December 2013. The proportion of Company F’s accounting period that falls outside the period of account of the worldwide group is 9 months (January - September 2014). So the financing expense amount is reduced by 9/12 x £660,000 which is £495,000. Company F’s financing expense for the period of account of the worldwide group ended on 31 December 2013 is £165,000.

When considering the period of account of the worldwide group ending on 31 December 2014, three months of Company F’s accounting period will fall outside of this period. So the financing expense amount of £660,000 will be reduced by 3/12, or £165,000; thus £495,000 will be included as a financing expense amount for year ended 31 December 2014.

Example 2

The accounting periods of relevant group companies are prepared to slightly varying dates and the companies have made a mean accounting date election. The period of account of the worldwide group is the actual period for which the financial statements are drawn up. In electing for a mean accounting date the relevant group companies have agreed to treat each account as a 12 month period of account ending on the mean accounting date. This will not present a problem for the gateway test as there will be clearly identifiable UK net debt on the first and last day of the period of account of the worldwide group. However, in calculating the tested expense and income amounts based on the deemed 12 month accounts ending on the mean accounting date it will be necessary to time apportion the amounts for the mean accounting date statements straddling the period of account of the worldwide group.

Example 3

The accounting period of Company G is the year ending 30 September 2014 and its financing expense amount for the period is £660,000. The accounting period for its worldwide group is the year ended 31 December 2013. Of its £660,000 financing expenses £300,000 relates to a guarantee payment paid by Company G in December 2013 for a loan guarantee provided to it by Company H. If the financing expense amount were adjusted under a time basis then the result was be as in Example 1 with Company G only bringing into account as financing expense £165,000. However on a just and reasonable basis Company G would assign to the three months to 31 December 2012 the £300,000 guarantee payment plus 3/12 of the balance of £360,000 the total being £390,000.