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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 exemption of financing income amounts: UK group companies with different accounting periods

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

If a UK group company does not have the same period of account as the worldwide group then the financing income 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 income amount by the proportion of the accounting period of the UK group company that falls outside the period of account of the worldwide group, see Example 1.

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 income 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 income is allocated to the correct part of the period of account. See Example 2 below.

Example 1

The accounting period of Company F is the year ending 30 September 2014 and its financing income amount for the period is £660,000. The accounting period for its worldwide group is the year ended 31 December 2014. The proportion of Company F’s accounting period that falls outside the period of account of the worldwide group is 3 months (October - December 2013). So the financing income amount is reduced by 3/12 x £660,000 which is £165,000. Company F’s financing income from its accounts to the year ended 30 September 2014 for the period of account of the worldwide group is £495,000.

It is likely that the UK group company will have finance income from its subsequent accounting period ended 30 September 2015 (for October to December 2014) that falls to be brought in as financing income for the 2014 period of account of the worldwide group.

The financing income that is outside the period of account of the worldwide group (the £165,000 for October to December 2013) is attributed to the previous period of account of the worldwide group ended 31 December 2013.

Example 2

The accounting period of Company G is the year ending 30 September 2014 and its financing income for the period is £500,000. The accounting period for its worldwide group is the year ended 31 December 2013. Of its £500,000 financing income £300,000 relates to a profit realised on a loan note purchased in October 2013 and sold in November 2013. If the total financing income amount of £500,000 was adjusted under a time basis then the amount brought into account for the three months to December 2013 would be £125,000. However on a just and reasonable basis Company G would assign to the three months to 31 December 2012 the £300,000 profit on the loan note plus 3/12 of the balance of £200,000 the total being £350,000.