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HMRC internal manual

Corporate Finance Manual

Debt cap: introduction to allocating the disallowance and exemption: balancing payments

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

Balancing payments are ‘tax nothings’

The effect of the debt cap may be that one UK resident member of a group (‘company A’) pays less corporation tax because its financing income is reduced or eliminated, while another company (‘company B’) pays more tax because it has a disallowance of expense amounts allocated to it. In these circumstances, company A may make a balancing payment to company B, in a similar way to one group company making a payment to another for group relief.

Provided that this is the sole or main reason for the payment, TIOPA10/S298 ensures that the payment is not taken into account in computing CT profits of either company A or company B, and is not treated as a distribution made by company A. This applies to the extent (and only to the extent) that the payment or payments do not exceed the lower of the financing income amounts disregarded by company A and the financing expense amounts disallowed in company B.