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HMRC internal manual

Corporate Finance Manual

Debt cap: calculating the exemption of financing income amounts: examples

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

Examples of financing income calculations

Example 1

All of the companies in a worldwide group have the same period of account. Company A has financing income of £1,500,000 but financing expense of £2,250,000. As its financing expense is greater than its financing income then deducting the expense from the income gives a negative result (minus £750,000), so the net financing income of the company for the period of account of the worldwide group is nil.

Example 2

As for example 1 but for Company B the financing expense is £1,300,000. The net financing income is £200,000 (£1,500,000 income less £1,300,000 expense) which is less than the de minimis amount of £500,000. In this case the financing income amount of the company is nil. However, if the worldwide group has made an election under TIOPA10/S331ZA (see CFM91245), its financing income amount is £200,000.

Example 3

Company C is a manufacturing company that is part of a worldwide group. The accounting period of Company C and the worldwide group is the year ended 31 December 2012. In this period Company C pays interest to a fellow group company of £300,000 and to a third party bank it pays interest of £80,000. It receives £1,000,000 interest from a bank deposit and has sold a corporate bond it holds for a profit of £500,000. The financing income of Company C is £1,000,000 - the profit on the sale of the corporate bond is the profit from a related transaction and so is an excluded credit. The financing expense of company C is £380,000 and so its net financing income is £620,000.

The tested income amount of a group consisting of Companies A, B and C above is £620,000 (nil plus nil plus £620,000).