Debt cap: calculating the disallowance of financing expense amounts: calculation of disallowance
This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.
Calculating the disallowance
Having arrived at the net financing deduction for each relevant group company, these amounts are aggregated to get the tested expense amount for the group (TIOPA10//S329(1). The final step in this stage of the process is to compare the tested expense amount with the available amount (see CFM92400 onwards for computation of the available amount). Any excess of the tested expense amount over the available amount is the total disallowed amount (TIOPA10/S274(1)).
Group H is a worldwide group and its period of account is the year to 31 March 2012. Its available amount is £12 million, and it has three UK subsidiaries. Subsidiary I has a net financing deduction of £15 million, Subsidiary J has a net financing deduction of £450,000 and Subsidiary K has a net financing deduction of £7 million. In this scenario, the UK subsidiaries must have been paying substantial amounts of financing expenses to non-UK group members, because otherwise the UK financing expenses could not have exceeded the group’s external funding costs.
The tested expense amount is £22 million (£15 million plus £7 million). The net financing deduction of Subsidiary J is less than £500,000 and so it is treated as nil (see CFM91080).
The total disallowed amount is the tested expense amount less the available amount which is £10 million (£22 million less £12 million). The disallowance will be allocated amongst the relevant group companies through submission of a statement of allocated disallowances, or a default allocation.